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

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Author Info
Kenneth D. West
David W. Wilcox

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Abstract

Using a dynamic linear equation that has a conditionally homoskedastic moving average disturbance, we 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)). We 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0176.

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Date of creation: Mar 1995
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Handle: RePEc:nbr:nberte:0176

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

References listed on IDEAS
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  1. 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.
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  2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
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  3. Kenneth D. West, 1995. "Another Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," NBER Technical Working Papers 0183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. 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.
  5. 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. [Downloadable!] (restricted)
  6. Kenneth D. West, 1993. "Inventory Models," NBER Technical Working Papers 0143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 631-53, October. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. Eichenbaum, Martin, 1989. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," American Economic Review, American Economic Association, vol. 79(4), pages 853-64, September. [Downloadable!] (restricted)
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  12. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sophocles Mavroeidis, 2006. "Testing the New Keynesian Phillips Curve Without Assuming Identification," Working Papers 2006-13, Brown University, Department of Economics. [Downloadable!]
  2. Kenneth D. West, 2000. "On Optimal Instrumental Variables Estimation of Stationary Time Series Models," NBER Technical Working Papers 0249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Kenneth D. West, 1995. "Another Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," NBER Technical Working Papers 0183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. David Mandy & Sandor Fridli, 2004. "Exact FGLS Asymptotics for MA Errors," Working Papers 0405, Department of Economics, University of Missouri, revised 16 Dec 2004. [Downloadable!]
  5. Kenneth D. West & Michael W. McCracken, 1998. "Regression-Based Tests of Predictive Ability," NBER Technical Working Papers 0226, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kenneth D. West, 1993. "Inventory Models," NBER Technical Working Papers 0143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Agnes S. Joseph & Jan F. Kiviet, 2004. "Viewing the Relative Efficiency of IV Estimators in Models with Lagged and Instantaneous Feedbacks," Tinbergen Institute Discussion Papers 04-056/4, Tinbergen Institute. [Downloadable!]
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  8. repec:att:wimass:199717 is not listed on IDEAS
  9. repec:att:wimass:1920120 is not listed on IDEAS
  10. Jan F. Kiviet & Jerzy Niemczyk, 2006. "The Asymptotic and Finite Sample Distributions of OLS and Simple IV in Simultaneous Equations," Tinbergen Institute Discussion Papers 06-078/4, Tinbergen Institute. [Downloadable!]
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  11. Adrian Pagan, 2007. "Weak Instruments: A Guide to the Literature," NCER Working Paper Series 13, National Centre for Econometric Research. [Downloadable!]
  12. David Mandy & Carlos Martins-Filho, 2001. "Optimal Iv Estimation Of Systems With Stochastic Regressors And Var Disturbances With Applications To Dynamic Systems," Econometric Reviews, Taylor and Francis Journals, vol. 20(4), pages 485-505. [Downloadable!] (restricted)
    Other versions:
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