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Sensitivity of GLS estimators in random effects models

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  • Vasnev, Andrey L.

Abstract

This paper studies the sensitivity of random effects estimators in the one-way error component regression model. Maddala and Mount (1973)Â [6] give simulation evidence that in random effects models the properties of the feasible GLS estimator are not affected by the choice of the first-step estimator used for the covariance matrix. Taylor (1980)Â [8] gives a theoretical example of this effect. This paper provides a reason for this in terms of sensitivity. The properties of are transferred via an uncorrelated (and independent under normality) link, called sensitivity. The sensitivity statistic counteracts the improvement in . A Monte Carlo experiment illustrates the theoretical findings.

Suggested Citation

  • Vasnev, Andrey L., 2010. "Sensitivity of GLS estimators in random effects models," Journal of Multivariate Analysis, Elsevier, vol. 101(5), pages 1252-1262, May.
    • Handle: RePEc:eee:jmvana:v:101:y:2010:i:5:p:1252-1262
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    References listed on IDEAS

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    1. Baltagi, Badi H., 1981. "Pooling : An experimental study of alternative testing and estimation procedures in a two-way error component model," Journal of Econometrics, Elsevier, vol. 17(1), pages 21-49, September.
    2. Karim M. Abadir & Jan R. Magnus, 2002. "Notation in econometrics: a proposal for a standard," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 76-90, June.
    3. Banerjee, Anurag N. & Magnus, Jan R., 1999. "The sensitivity of OLS when the variance matrix is (partially) unknown," Journal of Econometrics, Elsevier, vol. 92(2), pages 295-323, October.
    4. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    5. E. Castillo & A. J. Conejo & C. Castillo & R. Mínguez & D. Ortigosa, 2006. "Perturbation Approach to Sensitivity Analysis in Mathematical Programming," Journal of Optimization Theory and Applications, Springer, vol. 128(1), pages 49-74, January.
    6. repec:adr:anecst:y:1986:i:4:p:05 is not listed on IDEAS
    7. Jan R. Magnus & Andrey L. Vasnev, 2007. "Local sensitivity and diagnostic tests," Econometrics Journal, Royal Economic Society, vol. 10(1), pages 166-192, March.
    8. Don, F & Magnus, Jan, 1977. "On the Unbiasedness of Iterated GLS Estimators," University of Amsterdam, Actuarial Science and Econometrics Archive 293048, University of Amsterdam, Faculty of Economics and Business.
    9. Taylor, William E., 1980. "Small sample considerations in estimation from panel data," Journal of Econometrics, Elsevier, vol. 13(2), pages 203-223, June.
    10. Jan R. Magnus, 1986. "The Exact Moments of a Ratio of Quadratic Forms in Normal Variables," Annals of Economics and Statistics, GENES, issue 4, pages 95-109.
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    Cited by:

    1. Magnus, Jan R. & Vasnev, Andrey L., 2015. "Interpretation and use of sensitivity in econometrics, illustrated with forecast combinations," International Journal of Forecasting, Elsevier, vol. 31(3), pages 769-781.

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