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Approximate Bias Correction in Econometrics

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Author Info
James G. MacKinnon
Anthony A. Smith

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Abstract

This paper discusses ways to reduce the bias of consistent estimators that are biased in finite samples. It is necessary that the bias function, which relates parameter values to bias, should be estimable by computer simulation or by some other method. If so, bias can be reduced or, in some cases that may not be unrealistic, even eliminated. In general, several evaluations of the bias function will be required to do this. Unfortunately, reducing bias may increase the variance, or even the mean squared error, of an estimator. Whether or not it does so depends on the shape of the bias functions. The techniques of the paper are illustrated by applying them to two problems: estimating the autoregressive parameter in an AR(1) model with a constant term, and estimation of a logit model.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_919.pdf
File Format: application/pdf
File Function: First version 1995
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 919.

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Length: 28
Date of creation: Jan 1995
Date of revision:
Publication status: Published in Journal of Econometrics, 85, 1998
Handle: RePEc:qed:wpaper:919

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Related research
Keywords: bias function; mean squared error; simulation; finite samples;

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

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.:

  1. Davidson, Russell & MacKinnon, James G., 1992. "Regression-based methods for using control variates in Monte Carlo experiments," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 203-222. [Downloadable!] (restricted)
  2. repec:cup:etheor:v:10:y:1994:i:1:p:116-29 is not listed on IDEAS
  3. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De. [Downloadable!] (restricted)
  4. Sawa, Takamitsu, 1978. "The exact moments of the least squares estimator for the autoregressive model," Journal of Econometrics, Elsevier, vol. 8(2), pages 159-172, October. [Downloadable!] (restricted)
  5. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De. [Downloadable!] (restricted)
    Other versions:
  6. Chesher, Andrew & Peters, Simon, 1994. "Symmetry, Regression Design, and Sampling Distributions," Econometric Theory, Cambridge University Press, vol. 10(01), pages 116-129, March. [Downloadable!]
  7. repec:cup:etheor:v:9:y:1993:i:1:p:62-80 is not listed on IDEAS
  8. Kiviet, Jan F. & Phillips, Garry D. A., 1994. "Bias assessment and reduction in linear error-correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 215-243, July. [Downloadable!] (restricted)
  9. Orcutt, Guy H & Winokur, Herbert S, Jr, 1969. "First Order Autoregression: Inference, Estimation, and Prediction," Econometrica, Econometric Society, vol. 37(1), pages 1-14, January. [Downloadable!] (restricted)
  10. Smith, Anthony A, Jr & Sowell, Fallaw & Zin, Stanley E, 1997. "Fractional Integration with Drift: Estimation in Small Samples," Empirical Economics, Springer, vol. 22(1), pages 103-16.
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  11. Andrews, Donald W K, 1993. "Exactly Median-Unbiased Estimation of First Order Autoregressive/Unit Root Models," Econometrica, Econometric Society, vol. 61(1), pages 139-65, January. [Downloadable!] (restricted)
  12. Mackinnon, J.G. & Smith, A.A., 1996. "Approximate Bias Correction in Econometrics," G.R.E.Q.A.M. 96a14, Universite Aix-Marseille III.
    Other versions:
  13. Kiviet, Jan F. & Phillips, Garry D.A., 1993. "Alternative Bias Approximations in Regressions with a Lagged-Dependent Variable," Econometric Theory, Cambridge University Press, vol. 9(01), pages 62-80, January. [Downloadable!]
Full references

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. Martin A. Carree, 2002. "Nearly Unbiased Estimationin Dynamic Panel Data Models," Tinbergen Institute Discussion Papers 02-008/2, Tinbergen Institute. [Downloadable!]
  2. K. Patterson, 2007. "Bias Reduction through First-order Mean Correction, Bootstrapping and Recursive Mean Adjustment," Journal of Applied Statistics, Taylor and Francis Journals, vol. 34(1), pages 23-45, January. [Downloadable!] (restricted)
  3. Peter C.B. Phillips & Yangru Wu & Jun Yu, 2009. "Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values?," Cowles Foundation Discussion Papers 1699, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  4. Shawn Ni, 2007. "Excess Sensitivity in Consumption without Liquidity Constraint: Evidence from Monthly Household Panel Data," Working Papers 0714, Department of Economics, University of Missouri. [Downloadable!]
  5. Jason Dietrich, 2005. "The effects of sampling strategies on the small sample properties of the logit estimator," Journal of Applied Statistics, Taylor and Francis Journals, vol. 32(6), pages 543-554, August. [Downloadable!] (restricted)
  6. James G. MacKinnon, 2007. "Bootstrap Hypothesis Testing," Working Papers 1127, Queen's University, Department of Economics. [Downloadable!]
  7. Bergström, Pål, 1999. "Bootstrap Methods and Applications in Econometrics - A Brief Survey," Working Paper Series 1999:2, Uppsala University, Department of Economics. [Downloadable!]
  8. Qian Chen & David E. Giles, 2009. "Finite-Sample Properties of the Maximum Likelihood Estimator for the Binary Logit Model With Random Covariates," Econometrics Working Papers 0906, Department of Economics, University of Victoria. [Downloadable!]
  9. Martin A. Carree, 2002. "Nearly Unbiased Estimation in Dynamic Panel Data Models with Exogenous Variables," Tinbergen Institute Discussion Papers 02-007/2, Tinbergen Institute. [Downloadable!]
  10. Martin Browning & Jesus Carro, 2006. "Heterogeneity in dynamic discrete choice models," Economics Series Working Papers 287, University of Oxford, Department of Economics. [Downloadable!]
  11. Jan F. Kiviet & Garry D. A. Phillips, 2000. "Improved Coefficient and Variance Estimation in Stable First-Order Dynamic Regression Models," Econometric Society World Congress 2000 Contributed Papers 0631, Econometric Society. [Downloadable!]
  12. F. Cribari-Neto & G.M. Cordeiro, 1995. "On Bartlett and Bartlett-Type Corrections," Econometrics 9507001, EconWPA. [Downloadable!]
  13. Steve Lawford & Michalis P. Stamatogiannis, 2004. "The Finite-Sample Effects of VAR Dimensions on OLS Bias, OLS Variance, and Minimum MSE Estimators: Purely Nonstationary Case," Public Policy Discussion Papers 04-05, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
    Other versions:
  14. James G. MacKinnon & Anthony A. Smith, 1995. "Approximate Bias Correction in Econometrics," Working Papers 919, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
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