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This paper introduces SEM-DNN, a neural network framework capable of estimating bidirectional causal interactions in observational data without relying on external instruments. By leveraging conditional covariance diagonalization to handle heteroscedasticity within simultaneous-equation models, the method offers a robust alternative for uncovering reciprocal structural effects where traditional reduced-form regressions fall short. While computationally intensive compared to parametric or kernel-based baselines, it demonstrates superior reliability in recovering true causal coefficients under high-dimensional and nonlinear conditions.
Learning Bidirectional Causal Interactions with Heteroscedastic Neural Networks
arXiv:2607.22313v1 Announce Type: cross Abstract: Estimating contemporaneous bidirectional interactions from observational data is difficult because each outcome is endogenous to the other, while flexible regressions may capture only reduced-form dependence. This paper proposes SEM-DNN, a heteroscedastic neural simultaneous-equation estimator that learns reciprocal structural interactions without external instruments. Identification exploits conditional covariance diagonalization: when structural shocks have zero conditional means, are conditionally uncorrelated given predetermined covariates, and exhibit nonproportional conditional variances, only the true interaction coefficients diagonalize the conditional residual covariance across the feature space. The method jointly approximates nonlinear structural mean functions and feature-dependent variances using a diagonal Gaussian quasi-likelihood that incorporates the simultaneous-system Jacobian. We establish unique identification and positive-definite local curvature of the profiled population criterion and show that, under neural-profile compatibility conditions, the implemented neural criterion inherits this curvature despite nonunique network parameterizations. The coefficients admit a causal interpretation when the structural equations represent autonomous mechanisms that remain invariant under the relevant interventions. Monte Carlo experiments with nonlinear, high-dimensional nuisance functions and non-Gaussian shocks show that SEM-DNN recovers structural effects more reliably than parametric, kernel-based, and separate-equation neural alternatives as information increases, although at greater computational cost. An application to ready-to-eat cereal scanner data illustrates how the method can study contemporaneous price-sales feedback and assess identification strength, residual diagonalization, variance calibration, and optimization sensitivity.
Abstract:Estimating contemporaneous bidirectional interactions from observational data is difficult because each outcome is endogenous to the other, while flexible regressions may capture only reduced-form dependence. This paper proposes SEM-DNN, a heteroscedastic neural simultaneous-equation estimator that learns reciprocal structural interactions without external instruments. Identification exploits conditional covariance diagonalization: when structural shocks have zero conditional means, are conditionally uncorrelated given predetermined covariates, and exhibit nonproportional conditional variances, only the true interaction coefficients diagonalize the conditional residual covariance across the feature space. The method jointly approximates nonlinear structural mean functions and feature-dependent variances using a diagonal Gaussian quasi-likelihood that incorporates the simultaneous-system Jacobian. We establish unique identification and positive-definite local curvature of the profiled population criterion and show that, under neural-profile compatibility conditions, the implemented neural criterion inherits this curvature despite nonunique network parameterizations. The coefficients admit a causal interpretation when the structural equations represent autonomous mechanisms that remain invariant under the relevant interventions. Monte Carlo experiments with nonlinear, high-dimensional nuisance functions and non-Gaussian shocks show that SEM-DNN recovers structural effects more reliably than parametric, kernel-based, and separate-equation neural alternatives as information increases, although at greater computational cost. An application to ready-to-eat cereal scanner data illustrates how the method can study contemporaneous price-sales feedback and assess identification strength, residual diagonalization, variance calibration, and optimization sensitivity.
Machine Learning (stat.ML); Machine Learning (cs.LG); Methodology (stat.ME)
arXiv:2607.22313 [stat.ML]
(or arXiv:2607.22313v1 [stat.ML] for this version)
https://doi.org/10.48550/arXiv.2607.22313 Focus to learn more arXiv-issued DOI via DataCite (pending registration)
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