Hello everyone,

I’m running a simultaneous equation model with 2 equations as following :

Y1 = f(Y2, X1) ; probit
Y2 = f(X1, X2) ; oprobit

Where,
Y1 is a binary variable
Y2 is an ordered endogenous variable
X1 is a set of exogenous variables that affect Y1 and Y2
X2 is a set of exogenous variables that affect only Y2.

To do this, I’m using the cmp command like this :

Cmp (Y1 = Y2# X1) (Y2 = X2 X2), ind($cmp_probit $cmp_oprobit)

At first, I’m not sure if it’s the best solution ? What is the exact difference between the use of the latent variable (Y2#) and if I directlly introduce the categories of Y2 (Y2_1 Y2_2 for example) ? What’s solution is better and why ?

And, how can I interpret the coefficient associate to the latent variable Y2 in my first equation ?

Thanks.