[Sarah Magd]

Dear Prof. Sebastian Kripfganz

In the regression where I have the simultaneity issue (i.e., before addressing the endogeneity), can we rely on the value of the resulting R2 from this regression? or would the simultaenity issue and the associated endogeneity can distort the value of the R2?

Could you please guide me on this?

[Sebastian Kripfganz]

I am not sure why you would even care about this R². It gives you the fraction of the variance of the dependent variable that is explained by the variance of the linear prediction from the explanatory variables. This linear projection does not have a causal interpretation; thus, the notion of endogeneity is not meaningful in this context.

[Sarah Magd]

Thank you very much Prof. Sebastian Kripfganz

What we do in the first step, before using GMM, is estimate our models with FE and show different specifications. We also report the R² and adjusted R². As I understand from your answer, I can rely on the R² values to compare my specifications, since R² is not affected by the endogeneity problem caused by the simultaneity issue. Is that correct?