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Estimates of the Bias of Lagged Dependent Variable Coefficient Estimates in Macroeconomic Equations

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Abstract

A stochastic-simulation method is proposed in this paper for obtaining median unbiased estimates of lagged dependent variable coefficients in macroeconomic models. Estimated biases for 13 equations of a macroeconomic model are computed. These biases are on average somewhat smaller in absolute bias than would be expected from Andrews' exact results for an equation with only a constant term, time trend, and lagged dependent variable, although they are larger than would be expected from Hurwicz's original estimates. In a practical sense the estimated biases are not very large because they have little effect on the overall predictive accuracy of the model and on its multiplier properties.

Suggested Citation

  • Ray C. Fair, 1992. "Estimates of the Bias of Lagged Dependent Variable Coefficient Estimates in Macroeconomic Equations," Cowles Foundation Discussion Papers 1005, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1005
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    References listed on IDEAS

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    1. Fair, Ray C, 1980. "Estimating the Uncertainty of Policy Effects in Nonlinear Models," Econometrica, Econometric Society, vol. 48(6), pages 1381-1391, September.
    2. Orcutt, Guy H & Winokur, Herbert S, Jr, 1969. "First Order Autoregression: Inference, Estimation, and Prediction," Econometrica, Econometric Society, vol. 37(1), pages 1-14, January.
    3. Donald W.K. Andrews, 1991. "Exactly Unbiased Estimation of First Order Autoregressive-Unit Root Models," Cowles Foundation Discussion Papers 975, Cowles Foundation for Research in Economics, Yale University.
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