Advanced Search
MyIDEAS: Login to save this paper or follow this series

Instrumental Variables Estimation of Heteroskedastic Linear Models Using All Lags of Instruments

Contents:

Author Info

  • Kenneth D. West
  • Ka-fu Wong
  • Stanislav Anatolyev

Abstract

We propose and evaluate a technique for instrumental variables estimation of linear models with conditional heteroskedasticity. The technique uses approximating parametric models for the projection of right hand side variables onto the instrument space, and for conditional heteroskedasticity and serial correlation of the disturbance. Use of parametric models allows one to exploit information in all lags of instruments, unconstrained by degrees of freedom limitations. Analytical calculations and simulations indicate that there sometimes are large asymptotic and finite sample efficiency gains relative to conventional estimators (Hansen (1982)), and modest gains or losses depending on data generating process and sample size relative to quasi-maximum likelihood. These results are robust to minor misspecification of the parametric models used by our estimator.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w13134.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13134.

as in new window
Length:
Date of creation: May 2007
Date of revision:
Publication status: published as Kenneth West & Ka-fu Wong & Stanislav Anatolyev, 2009. "Instrumental Variables Estimation of Heteroskedastic Linear Models Using All Lags of Instruments," Econometric Reviews, Taylor and Francis Journals, vol. 28(5), pages 441-467.
Handle: RePEc:nbr:nberwo:13134

Note: AP EFG ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Campbell, John Y. & Mankiw, N. Gregory, 1990. "Permanent Income, Current Income, and Consumption," Scholarly Articles 3353762, Harvard University Department of Economics.
  2. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
  3. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 47(6), pages 1441-55, November.
  4. West, Kenneth D & Wilcox, David W, 1996. "A Comparison of Alternative Instrumental Variables Estimators of a Dynamic Linear Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(3), pages 281-93, July.
  5. repec:cup:etheor:v:9:y:1993:i:4:p:633-48 is not listed on IDEAS
  6. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 4(4), pages 397-416, October.
  7. Ball, Laurence & Croushore, Dean, 2003. " Expectations and the Effects of Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(4), pages 473-84, August.
  8. Broze, Laurence & Francq, Christian & Zakoian, Jean-Michel, 2001. "Non-redundancy of high order moment conditions for efficient GMM estimation of weak AR processes," Economics Letters, Elsevier, Elsevier, vol. 71(3), pages 317-322, June.
  9. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  10. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 7-46, May.
  11. 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.
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  13. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  14. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  15. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 505, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  17. Newey, Whitney K., 1988. "Adaptive estimation of regression models via moment restrictions," Journal of Econometrics, Elsevier, Elsevier, vol. 38(3), pages 301-339, July.
  18. Hansen, Lars Peter, 1985. "A method for calculating bounds on the asymptotic covariance matrices of generalized method of moments estimators," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 203-238.
  19. 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, American Statistical Association, vol. 14(1), pages 53-68, January.
  20. Bates, Charles E. & White, Halbert, 1993. "Determination of Estimators with Minimum Asymptotic Covariance Matrices," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 9(04), pages 633-648, August.
  21. Breusch, Trevor & Qian, Hailong & Schmidt, Peter & Wyhowski, Donald, 1999. "Redundancy of moment conditions," Journal of Econometrics, Elsevier, Elsevier, vol. 91(1), pages 89-111, July.
  22. Mishkin, Frederic S., 1992. "Is the Fisher effect for real? : A reexamination of the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 30(2), pages 195-215, November.
  23. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  24. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  25. Kuersteiner, Guido M., 2002. "Efficient Iv Estimation For Autoregressive Models With Conditional Heteroskedasticity," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 18(03), pages 547-583, June.
  26. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 246-73, April.
  27. Oliner, Stephen D. & Rudebusch, Glenn D. & Sichel, Daniel, 1996. "The Lucas critique revisited assessing the stability of empirical Euler equations for investment," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 291-316, January.
  28. Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, Elsevier, vol. 93(2), pages 327-344, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kuersteiner, Guido M., 2012. "Kernel-weighted GMM estimators for linear time series models," Journal of Econometrics, Elsevier, Elsevier, vol. 170(2), pages 399-421.
  2. Stanislav Anatolyev, 2007. "Optimal Instruments In Time Series: A Survey," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 143-173, 02.
  3. Gospodinov, Nikolay & Otsu, Taisuke, 2012. "Local GMM estimation of time series models with conditional moment restrictions," Journal of Econometrics, Elsevier, Elsevier, vol. 170(2), pages 476-490.
  4. David Laibson & Andrea Repetto & Jeremy Tobacman, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," NBER Working Papers 13314, National Bureau of Economic Research, Inc.
  5. Lars Peter Hansen, 2014. "Uncertainty Outside and Inside Economic Models," Working Papers, Becker Friedman Institute for Research In Economics 2014-06, Becker Friedman Institute for Research In Economics.
  6. Lars Peter Hansen, 2014. "Uncertainty Outside and Inside Economic Models," NBER Working Papers 20394, National Bureau of Economic Research, Inc.
  7. Elena Corallo, 2005. "The effect of the war risk: a comparison of the consequences of the two Iraq wars on some financial variables," LIUC Papers in Economics, Cattaneo University (LIUC) 171, Cattaneo University (LIUC).
  8. West, Kenneth D., 2002. "Efficient GMM estimation of weak AR processes," Economics Letters, Elsevier, Elsevier, vol. 75(3), pages 415-418, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13134. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.