The Limited Information Maximum Likelihood Estimator as an Angle
AbstractWhen an econometric structural equation includes two endogenous variables and their coefficients are normalized so that their sum of squares is 1, it is natural to express them as the sine and cosine of an angle. The Limited Information Maximum Likelihood (LIML) estimator of this angle when the error covariance matrix is known has constant variance. Of all estimators with constant variance the LIML estimator minimizes the variance. Competing estimators, such as the Two-Stage Least Squares estimator, has much larger variance for some values of the parameter. The effect of weak instruments is studied.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-619.
Length: 34 pages
Date of creation: May 2009
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