### Simultaneity bias OLS

Posted:

**Mon Jan 31, 2011 6:57 am**Hello,

I estimate this model :

dlog(EC_thb/aud) = BETA1 dlog(EC_USD/aud) + BETA2 dlog(EC_ACU/aud)

where EC is the exchange rate. I explain the movement of thain bath (against a numeraire - asutralian dollar-) by movement of USD (against the same numerair) and an asian currency unit (composed by different asian currencies). Normally the beta give me the weight or the importance of usd and amu in the evolution of the thai bath. But thai bath and acu are in some extense determined by the same variable (us dollar)... so the coefficent BETA 2 is very strong.

So One of my explanatory variable is apparently determined simultaneously with the dependent variable of my model. In this case normally, the former is generally correlated to the error term which leads to inconsistent and biased OLS estimates.

How i can check correlated error term with the explanatory variable in eviews (control this simultaneity bias) ? and how i can remove this effect ?

thank you very much.

Best regards

I estimate this model :

dlog(EC_thb/aud) = BETA1 dlog(EC_USD/aud) + BETA2 dlog(EC_ACU/aud)

where EC is the exchange rate. I explain the movement of thain bath (against a numeraire - asutralian dollar-) by movement of USD (against the same numerair) and an asian currency unit (composed by different asian currencies). Normally the beta give me the weight or the importance of usd and amu in the evolution of the thai bath. But thai bath and acu are in some extense determined by the same variable (us dollar)... so the coefficent BETA 2 is very strong.

So One of my explanatory variable is apparently determined simultaneously with the dependent variable of my model. In this case normally, the former is generally correlated to the error term which leads to inconsistent and biased OLS estimates.

How i can check correlated error term with the explanatory variable in eviews (control this simultaneity bias) ? and how i can remove this effect ?

thank you very much.

Best regards