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segsell committed Jan 29, 2020
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Expand Up @@ -30,17 +30,17 @@ The parametric model imposes the assumption of joint normality of the unobservab
Semiparametric Model
^^^^^^^^^^^^^^^^^^^^
The semiparametric approach invokes no assumption on the distribution of the unobservables. It requires a weaker condition
:math:`(X,Z) \indep \{U_1, U_0, V\}`
:math:`(X,Z) \indep {U_1, U_0, V}`

Under this assumption, the MTE is:

* item additively separable in :math:`X` and :math:`U_D`, which means that the shape of the MTE is independent of :math:`X`, and
* additively separable in :math:`X` and :math:`U_D`, which means that the shape of the MTE is independent of :math:`X`, and

* item identified over the common support of :math:`(P(Z)`, unconditional on :math:`X`.
* identified over the common support of :math:`P(Z)`, unconditional on :math:`X`.


The assumption of common support is crucial for the application of LIV and needs to be carefully evaluated every time.
It is defined as the region where the support of :math:`(P(Z)` given :math:`D=1` and the support of :math:`(P(Z)` given :math:`D=0 overlap.
It is defined as the region where the support of :math:`P(Z)` given :math:`D=1` and the support of :math:`P(Z)` given :math:`D=0 overlap.

Model Specification
-------------------
Expand All @@ -61,7 +61,7 @@ source str specified name for the simulation output files

**ESTIMATION**

Depending on the model specified, different input parameters are required.
Depending on the model, different input parameters are required.

**PARAMETRIC MODEL**

Expand Down Expand Up @@ -107,13 +107,13 @@ In most empirical applications, bandwidth choices between 0.2 and 0.4 are approp
For data sets with less than 400 observations, we recommend a gridsize equivalent to the maximum number of observations that
remain after trimming the common support.
If the data set of size N is large enough, a gridsize of 400 should be considered as the minimal number of evaluation points.
Since *grmpy*'s algorithm is fast enough, gridsize can be easily increased to *N* evaluation points.
Since *grmpy*'s algorithm is fast enough, gridsize can be easily increased to N evaluation points.

The "rbandwidth", which is 0.05 by default, specifies the bandwidth for the LOWESS (Locally Weighted Scatterplot Smoothing) regression of
:math:`X`, :math:`X \ \times \ p`, and :math:`Y` on :math:`\widehat{P}(Z)`. If the sample size is small (N < 400),
the user may need to increase "rbandwidth" to 0.1. Otherwise *grmpy* will throw an error.

Note that the MTE identified by LIV consists of wo components: :math:`\overline{x}(\beta_1 - \beta_0)` (which does not depend on :math:`P(Z) = p)` and :math:`k(p)`
Note that the MTE identified by LIV consists of wo components: :math:`\overline{x}(\beta_1 - \beta_0)` (which does not depend on :math:`P(Z) = p`) and :math:`k(p)`
(which does depend on :math:`p`). The latter is estimated nonparametrically. The key "p_range" in the initialization file specifies the interval
over which :math:`k(p)` is estimated. After the data outside the overlapping support are trimmed, the locally quadratic kernel estimator
uses the remaining data to predict :math:`k(p)` over the entire "p_range" specified by the user. If "p_range" is larger than the common support, *grmpy*
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