A note on the different interpretation of the correlation parameters in the Bivariate Probit and the Recursive Bivariate Probit

Open access
Date
2018-06Type
- Journal Article
Citations
Cited 35 times in
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Cited 43 times in
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Abstract
This note shows that, if a Bivariate Probit (BP) model is estimated on data arising from a Recursive Bivariate Probit (RBP) process, the resulting BP correlation parameter is a weighted average of the RBP correlation parameter and the parameter associated to the endogenous binary variable. Two corollaries follow this proposition: i) the interpretation of the correlation parameter in the RBP is not the same as in the BP —i.e. the RBP correlation parameter does not necessarily reflect the correlation between the binary variables under study; and ii) a zero correlation parameter in a BP model, usually interpreted as evidence of independence between the binary variables under study, may actually mask the presence of an RBP proces. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000253863Publication status
publishedExternal links
Journal / series
Economics LettersVolume
Pages / Article No.
Publisher
ElsevierSubject
Bivariate probit; Tetrachoric correlation; Recursive Bivariate probit; Monte Carlo simulationOrganisational unit
03539 - Filippini, Massimo / Filippini, Massimo
Related publications and datasets
Is variant form of: https://doi.org/10.3929/ethz-b-000186391
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Show all metadata
Citations
Cited 35 times in
Web of Science
Cited 43 times in
Scopus
ETH Bibliography
yes
Altmetrics