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A simple improvement of the IV estimator for the classical errors-in-variables problem

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Author Info
Andersson, Jonas () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
Møen, Jarle () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

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Abstract

Two measures of an error-ridden explanatory variable make it possible to solve the classical errors-in-variable problem by using one measure as an instrument for the other. It is well known that a second IV estimate can be obtained by reversing the roles of the two measures. We explore a simple estimator that is the linear combination of these two estimates, that minimizes the asymptotic mean squared error. In a Monte Carlo study we show that the gain in precision is significant compared to using only one of the original IV estimates. The proposed estimator also compares well with full information maximum likelihood under normality.

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Publisher Info
Paper provided by Department of Finance and Management Science, Norwegian School of Economics and Business Administration in its series Discussion Papers with number 2009/10.

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Length: 18 pages
Date of creation: 15 Sep 2009
Date of revision:
Handle: RePEc:hhs:nhhfms:2009_010

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Related research
Keywords: Measurement errors; Classical Errors-in-Variables; multiple indicator method; Instrumental variable techniques;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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This page was last updated on 2009-11-26.

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