Wednesday, February 22, 2006

st: Use the ML of ivprobit to estimate two structural equations model

I want to estimate the following two-equation simultaneous model (model 4 in Maddala (1983, p120) y1=r1x1+u1 y2*=b2y1+r2x2+u2 where y1 is a continuous variable and y2 is a binary variable. This model takes the formulation that ivprobit estimates except that here both equations are structural equations. So x1 in the first equation may not contain all exogenous regressors in x2. I believe these two models have the same log-likelihood funaction form (Wooldridge(2002,p476)). I am not aware how the atanh rho is related to the ML estimation as described in the ivprobit paragraph of Stata base reference manual 9 (p.523-524). Can anyone suggest how to estimate this model using maximum likelihood method?

Thank you for your kind help

Richard Lo

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