Semi-Nonparametric IV Estimation of Shape-Invariant Engel Curves

Richard Blundell, Xiaohong Chen, Dennis Kristensen

Econometrica · 2007 · Volume 75 · Issue 6

DOI: 10.1111/j.1468-0262.2007.00808.x

Abstract

This paper studies a shape-invariant Engel curve system with endogenous total expenditure, in which the shape-invariant specification involves a common shift parameter for each demographic group in a pooled system of nonparametric Engel curves. We focus on the identification and estimation of both the nonparametric shapes of the Engel curves and the parametric specification of the demographic scaling parameters. The identification condition relates to the bounded completeness and the estimation procedure applies the sieve minimum distance estimation of conditional moment restrictions, allowing for endogeneity. We establish a new root mean squared convergence rate for the nonparametric instrumental variable regression when the endogenous regressor could have unbounded support. Root-nasymptotic normality and semiparametric efficiency of the parametric components are also given under a set of “low-level” sufficient conditions. Our empirical application using the U.K. Family Expenditure Survey shows the importance of adjusting for endogeneity in terms of both the nonparametric curvatures and the demographic parameters of systems of Engel curves.

Keywords

Consumer demands, nonparametric IV, bounded completeness, sieve minimum distance, sieve measure of ill-posedness, nonparametric convergence rate, root-nsemiparametric efficiency

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