[R] How to program friction model(kind of cencored regression )

[Amatoallah Ouchen]

Hi,

I am going to program (what is called) the “friction model” in economics
and statistics. This model can be used for analysing the government
intervention. It looks like tobit but different. I can not deal with this
model by any R library. This model assume that government intervenes in the
market only when a certain condition is fulfilled.

For example, INT is the amount of government intervention in the market.
The equation to be estimated is:
(1) *INT = a + b*X +e*  where INT indicates (actual) intervention amount
and X is control variable.

Let INT* denote the desirable intervention amount – this is the same as the
right hand side of equation (1) excluding error terms. Then the acutal
value, i.e., INT, have a differnt value depending on whether INT* reach the
threshold. That is, government is assumed to intervene only when INT* is
larger than the upper positive threshold(p>0) or less than the lower
negative threshold(n<0).

That is, there are 3 cases.
(2)
INT = INT* - p + e             if INT*>p : intervention
INT= 0 if n<=INT*<=p        no intervention
INT= INT* + n +e               if INT*<n : intervention

The parameters(a,b, p, n) in (1) and (2) can be estimated by maximum
likelihood.

does  anyone  knows how to program this model or has complete code of this
model ?
Many thanks in advance !!
Ama

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