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A Note on The Moments of Stochastic Shrinkage Parameters in Ridge Regression


  • Luis Firinguetti
  • Hernán Rubio


A common problem in econometric models and multiple regression in general is multicollinearity, which produces undesirable effects on the Least Squares estimators. A possible solution to this problem is the "Ridge" Regression estimator proposed by Hoerl and Kennard (1970). Ridge Regression has been applied to such diverse areas as economics, marketing and the calibration of instruments in industrial processes. However, the properties of these estimators crucially depend upon the selection of certain biasing parameters which are stochastic. In this regard several proposals have been made and the purpose of this paper is to derive general expressions for the moments of the stochastic biasing parameters. With this knowledge we expect to stablish conditions under which a Ridge Regression estimator is better than others.

Suggested Citation

  • Luis Firinguetti & Hernán Rubio, 2000. "A Note on The Moments of Stochastic Shrinkage Parameters in Ridge Regression," Working Papers Central Bank of Chile 65, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:65

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    References listed on IDEAS

    1. Engel, Eduardo M. R. A. & Galetovic, Alexander & Raddatz, Claudio E., 1999. "Taxes and income distribution in Chile: some unpleasant redistributive arithmetic," Journal of Development Economics, Elsevier, vol. 59(1), pages 155-192, June.
    2. Manuel Agosin & Ricardo French-Davis, 1997. "Managing capital inflows in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 24(2 Year 19), pages 297-326, December.
    3. Bernard J Laurens & Jaime Cardoso, 1998. "Managing Capital Flows; Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
    4. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
    5. Patricio Rojas & Eduardo López & Susana Jiménez, 1997. "Determinantes del Crecimiento y Estimación del Producto Potencial en Chile: El Rol del Comercio," Working Papers Central Bank of Chile 24, Central Bank of Chile.
    6. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-313, June.
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    Cited by:

    1. Barrera, Carlos, 2010. "¿Respuesta asimétrica de precios domésticos de combustibles ante choques en el WTI?," Working Papers 2010-016, Banco Central de Reserva del Perú.
    2. Hernán Rubio & Luis Firinguetti, 2002. "The Distribution of Stochastic Shrinkage Parameters in Ridge Regression," Working Papers Central Bank of Chile 137, Central Bank of Chile.
    3. Barrera, Carlos R., 2011. "Impacto amplificador del ajuste de inventarios ante choques de demanda según especificaciones flexibles," Working Papers 2011-009, Banco Central de Reserva del Perú.

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