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Recursive vs Non-Recursive Models Explained

1. Recursive models have uni-directional causal effects and uncorrelated disturbances, while non-recursive models contain feedback loops and reciprocal effects. 2. Non-recursive models are more flexible but can be difficult to identify and require additional variables for consistent estimation of parameters. 3. Instrumental variables can be used to identify endogenous regressors in non-recursive models, but the IV must directly cause the endogenous variable and not be correlated with the error term.

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246 views14 pages

Recursive vs Non-Recursive Models Explained

1. Recursive models have uni-directional causal effects and uncorrelated disturbances, while non-recursive models contain feedback loops and reciprocal effects. 2. Non-recursive models are more flexible but can be difficult to identify and require additional variables for consistent estimation of parameters. 3. Instrumental variables can be used to identify endogenous regressors in non-recursive models, but the IV must directly cause the endogenous variable and not be correlated with the error term.

Uploaded by

Tram Anh
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We take content rights seriously. If you suspect this is your content, claim it here.
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Recursive and non-recursive models

Recursivity

• All models considered so far are ‘recursive’

• A recursive model is one where all causal


effects are uni-directional and disturbances
are uncorrelated

• A non-recursive model contains one or more


‘feedback loops’ or ‘reciprocal’ effects

2
Recursive Model

x1

1 d1

x2 y1
1

d2
x3
Causal effects uni-directional

Disturbances uncorrelated
3
Non-recursive model
1 d1

x2 y1

x3 x1
1

d2

Reciprocal causal effects

Disturbances correlated
4
Partially recursive 1
1 d1

x2 y1

x3 x1
1

d2

No direct effects amongst endogenous = recursive


5
Partially recursive 2
1 d1

x2 y1

x3 x1
1

d2

Direct effects amongst endogenous = non-recursive


6
Recursivity
• Recursive models always identified, simple to
estimate

• Non-recursive models more flexible

• But can pose problems for identification

• Require additional variables for identification

7
Non-recursive models

• Just because a model is identified does not


mean the parameter estimates are correct

• Consistent estimation of reciprocal paths


requires some strict (and often implausible)
assumptions to be met

• E.g. the exogenous variable used to identify of


synchronous parameters must meet be an
‘instrumental variable’

8
Endogenous regressor

• OLS assumes error term uncorrelated with predictors


• Correlation can arise from unobserved variables and
from simultaneous causal relationship
• To interpret β as causal effect, we need instrumental
variable for X1
Instrumental Variables (IV)

• An IV is a variable which introduces exogenous


variability into an endogenous regressor

• The IV, Z, must directly cause the endogenous


regressor but not the outcome
– Cov(Z,u)=0, Cov(xK,Z)≠0

• Random assignment to treatment & control


conditions in RCT is a good instrumental variable
10
Instrumental variable

• Z1 causes X1

• Z1 only causes Y1 via effect on X1


Instrumental Variables - examples

• Vietnam lottery draft for effect of Vietnam war on later


outcomes (Angrist and Krueger 1991)

• Proximity of nearest college for education on earnings


(Card 1995)

• Variation in amount of compulsory schooling for effects of


education on earnings (Hammon & Walker 1995)

12
Non-recursive SEM

Chi2=16; df=10; p<0.098;


RMSEA=.020; CFI=.997

Does happiness cause trust or trust cause happiness?


• Direct paths in both directions between happiness and trust
• Model unidentified without exogenous predictors (income and
marital status)
• Are these valid instrumental variables?

Data: European Social Survey 2004, GB only


Non-recursive SEM

Chi2=16; df=10; p<0.098;


RMSEA=.020; CFI=.997

Does happiness cause trust or trust cause happiness?


• Direct paths in both directions between happiness and trust
• Model unidentified without exogenous predictors (income and
marital status)
• Are these valid instrumental variables?

Data: European Social Survey 2004, GB only

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