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A Comparison of Alternative Instrumental Variables Estimators of a Dynamic Linear Model

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  • West, Kenneth D
  • Wilcox, David W

Abstract

Using a dynamic linear equation that has a conditionally homoskedastic moving average disturbance, the authors compare two parameterizations of a commonly used instrumental variables estimator (Hansen (1982)) to one that is asymptotically optimal in a class of estimators that includes the conventional one (Hansen (1985)). They find that for some plausible data generating processes, the optimal one is distinctly more efficient asymptotically. Simulations indicate that, in samples of size typically available, asymptotic theory describes the distribution of the parameter estimates reasonably well but that test statistics sometimes are poorly sized.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 14 (1996)
Issue (Month): 3 (July)
Pages: 281-93

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Handle: RePEc:bes:jnlbes:v:14:y:1996:i:3:p:281-93

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  1. Hansen, Lars Peter, 1985. "A method for calculating bounds on the asymptotic covariance matrices of generalized method of moments estimators," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 203-238.
  2. Hansen, Lars Peter & Singleton, Kenneth J, 1996. "Efficient Estimation of Linear Asset-Pricing Models with Moving Average Errors," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 53-68, January.
  3. Kenneth D. West, 1993. "Inventory Models," NBER Technical Working Papers 0143, National Bureau of Economic Research, Inc.
  4. Kenneth D. West & David W. Wilcox, 1993. "Some Evidence on Finite Sample Behavior of an Instrumental Variables Estimator of the Linear Quadtratic Inventory Model," NBER Technical Working Papers 0139, National Bureau of Economic Research, Inc.
  5. Martin S. Eichenbaum, 1988. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc.
  6. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  7. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  8. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  9. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 306-34, April.
  10. Kenneth D. West, 1985. "A Variance Bounds Test of the Linear Quardractic Inventory Model," NBER Working Papers 1581, National Bureau of Economic Research, Inc.
  11. Kenneth D. West, 1995. "Another Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," NBER Technical Working Papers 0183, National Bureau of Economic Research, Inc.
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  13. Rotemberg, Julio J, 1984. "Interpreting the Statistical Failures of Some Rational Expectations Macroeconomic Models," American Economic Review, American Economic Association, vol. 74(2), pages 188-93, May.
  14. Blanchard, Olivier J. & Melino, Angelo, 1986. "The cyclical behavior of prices and quantities: The case of the automobile market," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 379-407, May.
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