Hi all,
Background:
I am dealing with the following demand equation :
Sales = Price + Media + other exogenous variables
Theoretically, Price and Media both are endogenous variables and are also dependent upon each other. In such a situation, I am trying to solve a simultaneous equations system:
Sales = Price + Media + other exogenous variables
Price = Media + lag_Sales + Z1 + other exogenous variables
Media = Price + Media + lag_Sales + Z2 + other exogenous variables
where Z1 & Z2 are instruments for price and media.
I used reg3 command to solve the simultaneous equations and got results.
Here is the Problem:
Now the problem is advanced with the following demand equation:
Sales = Price + Media + Price*Media+ Price*Media*cat1+ Price*Media*cat2 + i.cat* Price + other exogenous variables
wherein there is an interaction between the endogenous variables, interaction of (price & media) with two indicator variables - cat1 & cat 2; finally, also there is an interaction af factor variables for cat1,cat2,cat3 interacted with the Price.
Other two equations remain the same.
Now, how do I deal with the endogeneity issue in these equations? How do I make sure that the interaction of endogenous variables is also corrected for endogeneity in a simultaneous equations system? Can I use reg3? If not, can someone advise a step by step procedure?
Thank you!
Guneet
Background:
I am dealing with the following demand equation :
Sales = Price + Media + other exogenous variables
Theoretically, Price and Media both are endogenous variables and are also dependent upon each other. In such a situation, I am trying to solve a simultaneous equations system:
Sales = Price + Media + other exogenous variables
Price = Media + lag_Sales + Z1 + other exogenous variables
Media = Price + Media + lag_Sales + Z2 + other exogenous variables
where Z1 & Z2 are instruments for price and media.
I used reg3 command to solve the simultaneous equations and got results.
Here is the Problem:
Now the problem is advanced with the following demand equation:
Sales = Price + Media + Price*Media+ Price*Media*cat1+ Price*Media*cat2 + i.cat* Price + other exogenous variables
wherein there is an interaction between the endogenous variables, interaction of (price & media) with two indicator variables - cat1 & cat 2; finally, also there is an interaction af factor variables for cat1,cat2,cat3 interacted with the Price.
Other two equations remain the same.
Now, how do I deal with the endogeneity issue in these equations? How do I make sure that the interaction of endogenous variables is also corrected for endogeneity in a simultaneous equations system? Can I use reg3? If not, can someone advise a step by step procedure?
Thank you!
Guneet
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