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A Second-order Approximation to the Bias of OLS Estimates in Bivariate VAR Models

Author

Listed:
  • Brännström, Tomas

    (Department of Economic Statistics)

Abstract

Two terms of a second-order approximation to the bias of the multivariate OLS estimate are derived using the same technique as in Nicholls and Pope (1988). The resulting second-order bias approximation is then tested against first-order alternatives on two bivariate Monte Carlo sijmulated VAR models. Even though the second-order terms do not completely remedy the bias left unadjusted by the first-order approximations, it makes a significant change in the right direction where the first-order approximations fail, notably in the smallest samples and when systems approach non-stationarity.

Suggested Citation

  • Brännström, Tomas, 1995. "A Second-order Approximation to the Bias of OLS Estimates in Bivariate VAR Models," SSE/EFI Working Paper Series in Economics and Finance 81, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0081
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    More about this item

    Keywords

    Vector autoregressive models; least-squares estimates; Bias approximation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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