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Is More Information a Good Thing? Bias Nonmonotonicity in Stochastic Difference Equations

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  • Abadir, Karim M
  • Hadri, Kaddour

Abstract

It is shown that the bias of estimated parameters in autoregressive models can increase as the sample size grows. This bias is also a nonmonotonic function of the largest autoregressive root, contrary to what asymptotic approximations had indicated so far in the literature. These unusual results are due to the effect of the initial sample observations that are typically neglected in theoretical asymptotic analysis, in spite of their empirical relevance. Implications for practical economic modelling are considered, including a comparison of the likely inaccuracies of parameter estimates in alternative models based on competing macroeconomic theories. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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  • Abadir, Karim M & Hadri, Kaddour, 2000. "Is More Information a Good Thing? Bias Nonmonotonicity in Stochastic Difference Equations," Bulletin of Economic Research, Wiley Blackwell, vol. 52(2), pages 91-100, April.
  • Handle: RePEc:bla:buecrs:v:52:y:2000:i:2:p:91-100
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    Cited by:

    1. Kaddour Hadri & Yao Rao, 2008. "Panel Stationarity Test with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, pages 245-269.
    2. Abadir, Karim M. & Talmain, Gabriel, 2005. "Autocovariance functions of series and of their transforms," Journal of Econometrics, Elsevier, pages 227-252.
    3. Kaddour Hadri & Yao Rao, 2008. "Panel Stationarity Test with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, pages 245-269.
    4. Vougas, Dimitrios V., 2006. "Remark on the asymptotic distribution of the OLS estimator in a simple Gaussian unit-root autoregression," Statistics & Probability Letters, Elsevier, pages 27-34.
    5. Lawford, Steve & Stamatogiannis, Michalis P., 2009. "The finite-sample effects of VAR dimensions on OLS bias, OLS variance, and minimum MSE estimators," Journal of Econometrics, Elsevier, pages 124-130.
    6. Kaddour Hadri & Rolf Larsson & Yao Rao, 2010. "Testing For Stationarity With a Break in Panels Where the Time Dimension is Finite," Economics Working Papers 10-08, Queen's Management School, Queen's University Belfast.
    7. Kaddour Hadri & Rolf Larsson & Yao Rao, 2012. "Testing For Stationarity With A Break In Panels Where The Time Dimension Is Finite," Bulletin of Economic Research, Wiley Blackwell, pages 123-148.

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