The asymptotic and finite sample distributions of OLS and simple IV in simultaneous equations
This discussion paper led to a publication in 'Computational Statistics & Data Analysis' 51(7) 3296-318. In practice structural equations are often estimated by least-squares, thus neglecting any simultaneity. This paper reveals why this may often be justifiable and when. Assuming data stationarity and existence of the first four moments of the disturbances we find the limiting distribution of the ordinary least-squares (OLS) estimator in a linear simultaneous equations model. In simple static and dynamic models we compare the asymptotic efficiency of this inconsistent estimator with that of consistent simple instrumental variable (IV) estimators and depict cases where -- due to relative weakness of the instruments or mildness of the simultaneity -- the inconsistent estimator is more precise. In addition, we examine by simulation to what extent these first-order asymptotic findings are reflected in finite sample, taking into account non-existence of moments of the IV estimator. By dynamic visualization techniques we enable to appreciate any differences in efficiency over a parameter space of a much higher dimension than just two, viz. in colored animated image sequences (which are not very effective in print, but much more so in live-on-screen projection).
(This abstract was borrowed from another version of this item.)
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Jean-Marie Dufour, 2003.
"Identification, weak instruments, and statistical inference in econometrics,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 36(4), pages 767-808, November.
- DUFOUR, Jean-Marie, 2003. "Identification, Weak Instruments and Statistical Inference in Econometrics," Cahiers de recherche 10-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- DUFOUR, Jean-Marie, 2003. "Identification, Weak Instruments and Statistical Inference in Econometrics," Cahiers de recherche 2003-12, Universite de Montreal, Departement de sciences economiques.
- Jean-Marie Dufour, 2003. "Identification, Weak Instruments and Statistical Inference in Econometrics," CIRANO Working Papers 2003s-49, CIRANO.
- Maasoumi, Esfandiar & Phillips, Peter C. B., 1982.
"On the behavior of inconsistent instrumental variable estimators,"
Journal of Econometrics,
Elsevier, vol. 19(2-3), pages 183-201, August.
- Esfandier Maasoumi & Peter C.B. Phillips, 1980. "On the Behavior of Inconsistent Instrumental Variable Estimators," Cowles Foundation Discussion Papers 568, Cowles Foundation for Research in Economics, Yale University.
- Joseph, Agnes S. & Kiviet, Jan F., 2005.
"Viewing the relative efficiency of IV estimators in models with lagged and instantaneous feedbacks,"
Computational Statistics & Data Analysis,
Elsevier, vol. 49(2), pages 417-444, April.
- 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.
- 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.
- 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, vol. 14(3), pages 281-93, July.
- Kenneth D. West & David W. Wilcox, 1995. "A Comparison of Alternative Instruments Variables Estimators of a Dynamic Linear Model," NBER Technical Working Papers 0176, National Bureau of Economic Research, Inc.
- West, K.D. & Wilcox, D.W., 1994. "A Comparison of Alternative Instrumental Variables Estimators of Dynamic Linear Model," Working papers 9414, Wisconsin Madison - Social Systems.
- Kenneth D. West & David W. Wilcox, 1994. "A Comparison of Alternative Instrumental Variables Estimators of Dynamic Linear Model," Macroeconomics 9410001, EconWPA.
- Elliott, Graham & STOCK, JAMES H, 2000.
"Confidence Intervals for Autoregressive Coefficients Near One,"
University of California at San Diego, Economics Working Paper Series
qt6ww3p59v, Department of Economics, UC San Diego.
- Elliott, Graham & Stock, James H., 2001. "Confidence intervals for autoregressive coefficients near one," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 155-181, July.
- Maurice J.G. Bun & Jan F. Kiviet, 2002.
"The Effects of Dynamic Feedbacks on LS and MM Estimator Accuracy in Panel Data Models,"
Tinbergen Institute Discussion Papers
02-101/4, Tinbergen Institute, revised 19 Feb 2004.
- Bun, Maurice J.G. & Kiviet, Jan F., 2006. "The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models," Journal of Econometrics, Elsevier, vol. 132(2), pages 409-444, June.
- Douglas Staiger & James H. Stock, 1994.
"Instrumental Variables Regression with Weak Instruments,"
NBER Technical Working Papers
0151, National Bureau of Economic Research, Inc.
- Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
- Alastair R. Hall & Atsushi Inoue, 2005.
"The Large Sample Behaviour of the Generalized Method of Moments Estimator in Misspecified Models,"
- Hall, Alastair R. & Inoue, Atsushi, 2003. "The large sample behaviour of the generalized method of moments estimator in misspecified models," Journal of Econometrics, Elsevier, vol. 114(2), pages 361-394, June.
- Woglom, Geoffrey, 2001. "More Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," Econometrica, Econometric Society, vol. 69(5), pages 1381-89, September.
- Hillier, Grant, 2006. "Yet More On The Exact Properties Of Iv Estimators," Econometric Theory, Cambridge University Press, vol. 22(05), pages 913-931, October.
- Jinyong Hahn & Atsushi Inoue, 2002. "A Monte Carlo Comparison Of Various Asymptotic Approximations To The Distribution Of Instrumental Variables Estimators," Econometric Reviews, Taylor & Francis Journals, vol. 21(3), pages 309-336.
When requesting a correction, please mention this item's handle: RePEc:eee:csdana:v:51:y:2007:i:7:p:3296-3318. 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: (Shamier, Wendy)
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.