Reduced-Dimension Control Regression
AbstractA model to investigate the relationship between one variable and another usually requires controls for numerous other effects which are not constant across the sample; where the model omits some elements of the true process, estimates of parameters of interest will typically be inconsistent. Here we investigate conditions under which, with a set of potential controls which is large (possibly infinite), orthogonal transformations of a subset of potential controls can nonetheless be used in a parsimonious regression involving a reduced number of orthogonal components (the ‘reduced-dimension control regression’), to produce consistent (and asymptotically normal, given further restrictions) estimates of a parameter of interest, in a general setting. We examine selection of the particular orthogonal directions, using a new criterion which takes into account both the magnitude of the eigenvalue and the correlation of the eigenvector with the variable of interest. Simulation experiments show good finite-sample performance of the method.
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Bibliographic InfoPaper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-17.
Length: 29 pages
Date of creation: Aug 2006
Date of revision:
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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- Stanislav Anatolyev, 2007. "Inference about predictive ability when there are many predictors," Working Papers w0096, Center for Economic and Financial Research (CEFIR).
- Stanislav Anatolyev, 2009.
"Inference in Regression Models with Many Regressors,"
w0125, Center for Economic and Financial Research (CEFIR).
- Anatolyev, Stanislav, 2012. "Inference in regression models with many regressors," Journal of Econometrics, Elsevier, vol. 170(2), pages 368-382.
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