Abstract
As analysis or prediction is made in detail, a simultaneous equation system is enlarged. Since a researcher usually has no perfect knowledge and/or precise data about the system, he estimates each equation of the system to some extent by trial and error. It becomes time-consuming, laborious and costly to estimate the whole system. If the number of predetermined variables exceeds the sample size or strong multicollinearity occurs among excluded predetermined variables, the system cannot be estimated with the limited information maximum likelihood (LIML). We modify LIML by using some effectively-influential principal components of excluded predetermined variables and propose a practical variable selection method to solve the j-th best subset problem in one computer-run by user's professional knowledge regarding the research in question as well as statistical and data-analytic criteria. The proposed method is embodied in the Researcher System OEPP.
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