Instruct: Identify the main and secondary category of Arxiv papers based on the titles and abstracts
Query: Two-Stage Bayesian Model Averaging in Endogenous Variable Models   Economic modeling in the presence of endogeneity is subject to model
uncertainty at both the instrument and covariate level. We propose a Two-Stage
Bayesian Model Averaging (2SBMA) methodology that extends the Two-Stage Least
Squares (2SLS) estimator. By constructing a Two-Stage Unit Information Prior in
the endogenous variable model, we are able to efficiently combine established
methods for addressing model uncertainty in regression models with the classic
technique of 2SLS. To assess the validity of instruments in the 2SBMA context,
we develop Bayesian tests of the identification restriction that are based on
model averaged posterior predictive p-values. A simulation study showed that
2SBMA has the ability to recover structure in both the instrument and covariate
set, and substantially improves the sharpness of resulting coefficient
estimates in comparison to 2SLS using the full specification in an automatic
fashion. Due to the increased parsimony of the 2SBMA estimate, the Bayesian
Sargan test had a power of 50 percent in detecting a violation of the
exogeneity assumption, while the method based on 2SLS using the full
specification had negligible power. We apply our approach to the problem of
development accounting, and find support not only for institutions, but also
for geography and integration as development determinants, once both model
uncertainty and endogeneity have been jointly addressed.

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The categories of this paper are: math-ph
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The categories of this paper are: hep-ex
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The categories of this paper are: acc-phys
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The categories of this paper are: hep-lat
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The categories of this paper are: q-fin
10
The categories of this paper are: q-bio
5
The categories of this paper are: gr-qc
28
The categories of this paper are: alg-geom
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The categories of this paper are: comp-gas
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The categories of this paper are: solv-int
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The categories of this paper are: q-alg
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The categories of this paper are: dg-ga
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The categories of this paper are: nucl-th
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The categories of this paper are: quant-ph
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The categories of this paper are: nucl-ex
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The categories of this paper are: bayes-an