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Robust Two�Stage Least Squares: Some Monte Carlo Experiments

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  • Sudhanshu Kumar MISHRA

Abstract

The Two�Stage Least Squares (2�SLS) is a well known econometric technique used to estimate the parameters of a multi�equation econometric model when errors across the equations are not correlated and the equation(s) concerned is (are) over�identified or exactly identified. However, in presence of outliers in the data matrix, the classical 2�SLS has a very poor performance. In this study a method has been proposed to generalize the 2�SLS to the Weighted Two�Stage Least Squares (W2�SLS), which is robust to the effects of outliers and perturbations. Monte Carlo experiments have been conducted to demonstrate the performance of the proposed method. It has been found that robustness of the proposed method is not much destabilized by the magnitude of outliers. The breakdown point of the method is quite high, somewhere between 45 to 50 percent of the number of points in the data matrix.

Suggested Citation

  • Sudhanshu Kumar MISHRA, 2008. "Robust Two�Stage Least Squares: Some Monte Carlo Experiments," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(4(6)_Wint).
    • Handle: RePEc:ush:jaessh:v:3:y:2008:i:4(6)_winter2008:41
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    1. N. A. Campbell, 1980. "Robust Procedures in Multivariate Analysis I: Robust Covariance Estimation," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 29(3), pages 231-237, November.
    2. Sudhanshu Kumar MISHRA, 2008. "A New Method Of Robust Linear Regression Analysis: Some Monte Carlo Experiments," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 261-268.
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    Cited by:

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    2. Mahmoud M. Sabra, 2021. "The Nexus Relationship between Exports and Government size Dynamic Panel Evidence from the MENA Region," GATR Journals jber209, Global Academy of Training and Research (GATR) Enterprise.
    3. Mahmoud M. SABRA, 2022. "How does Israel share Palestinians their international aid," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(630), S), pages 173-186, Spring.

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