Varying coefficient models in presence of endogeneity

Abstract

High degrees of heterogeneity across economic units can make the estimates of structural parameters inaccurate and uninformative. The present research proposes a semiparametric varying coefficient model able to identify cross-sectional heterogeneity while addressing endogeneity problems. The coefficients variation across groups improves the quality of the estimates and increases the credibility of the assumptions needed to use instrumental variables.