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A Comparison of Alternative Instrumental Variables Estimators of Dynamic Linear Model

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Author Info
Kenneth D. West (University of Wisconsin)
David W. Wilcox (Federal Reserve Board of Governors)

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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 EconWPA in its series Macroeconomics with number 9410001.

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Date of creation: 24 Oct 1994
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Handle: RePEc:wpa:wuwpma:9410001

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E - Macroeconomics and Monetary Economics

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  1. 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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  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  3. Hansen, Lars Peter, 1985. "A method for calculating bounds on the asymptotic covariance matrices of generalized method of moments estimators," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 203-238. [Downloadable!] (restricted)
  4. 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)
  5. 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)
  6. 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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  1. repec:att:wimass:1920120 is not listed on IDEAS
  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)
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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. Kenneth D. West, 1993. "Inventory Models," NBER Technical Working Papers 0143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. 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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  6. Adrian Pagan, 2007. "Weak Instruments: A Guide to the Literature," NCER Working Paper Series 13, National Centre for Econometric Research. [Downloadable!]
  7. Russell Davidson & James G. MacKinnon, 1994. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," Working Papers 903, Queen's University, Department of Economics. [Downloadable!]
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  8. repec:att:wimass:199717 is not listed on IDEAS
  9. 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)
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  10. 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!]
  11. 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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  12. 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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  13. Sophocles Mavroeidis, 2006. "Testing the New Keynesian Phillips Curve Without Assuming Identification," Working Papers 2006-13, Brown University, Department of Economics. [Downloadable!]
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