Lack of signal error (LoSE) and implications for OLS regression: measurement error for macro data
This paper proposes a simple generalization of the classical measurement error model, introducing new measurement errors that subtract signal from the true variable of interest, in addition to the usual classical measurement errors (CME) that add noise. The effect on OLS regression of these lack of signal errors (LoSE) is opposite the conventional wisdom about CME: while CME in the explanatory variables causes attenuation bias, LoSE in the dependent variable, not the explanatory variables, causes a similar bias under some conditions. In addition, LoSE in the dependent variable shrinks the variance of the regression residuals, making inference potentially misleading. The paper provides evidence that LoSE is an important source of error in US macroeconomic quantity data such as GDP growth, illustrates downward bias in regressions of GDP growth on asset prices, and provides recommendations for econometric practice.
|Date of creation:||2008|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
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.:
- Dennis J. Fixler & Jeremy J. Nalewaik, 2007.
"News, noise, and estimates of the "true" unobserved state of the economy,"
Finance and Economics Discussion Series
2007-34, Board of Governors of the Federal Reserve System (U.S.).
- Dennis J. Fixler & Jeremy Nalewaik, 2010. "News, Noise, and Estimates of the "True" Unobserved State of the Economy," BEA Working Papers 0068, Bureau of Economic Analysis.
- N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc.
- Jeremy J. Nalewaik, 2007. "Incorporating vintage differences and forecasts into Markov switching models," Finance and Economics Discussion Series 2007-23, Board of Governors of the Federal Reserve System (U.S.).
- Kimball, Miles S & Sahm, Claudia R & Shapiro, Matthew D, 2008. "Imputing Risk Tolerance From Survey Responses," Journal of the American Statistical Association, American Statistical Association, vol. 103(483), pages 1028-1038.
- Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2007. "Imputing Risk Tolerance from Survey Responses," NBER Working Papers 13337, National Bureau of Economic Research, Inc.
- repec:wsi:qjfxxx:v:02:y:2012:i:04:n:s2010139212500188 is not listed on IDEAS
- Dennis Fixler & Bruce Grimm, 2006. "GDP Estimates: Rationality Tests and Turning Point Performance," Journal of Productivity Analysis, Springer, vol. 25(3), pages 213-229, 06.
- Martin D. D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange-Rate Forecasting," American Economic Review, American Economic Association, vol. 95(2), pages 405-414, May.
- Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business), 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," Working Papers gueconwpa~05-05-01, Georgetown University, Department of Economics.
- Martin D.D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," NBER Working Papers 11042, National Bureau of Economic Research, Inc.
- Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-576, June.
- Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
- Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
- Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc.
- Karen E. Dynan & Douglas W. Elmendorf, 2001. "Do provisional estimates of output miss economic turning points?," Finance and Economics Discussion Series 2001-52, Board of Governors of the Federal Reserve System (U.S.).
- Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
- Jon Faust & John H. Rogers & Shing-Yi Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers 784, Board of Governors of the Federal Reserve System (U.S.).
- John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
- John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
- repec:fth:harver:1435 is not listed on IDEAS
- Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-554, June.
- Martin D. D. Evans & Richard K. Lyons, 2012. "Exchange Rate Fundamentals and Order Flow," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 1-63.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2008-15. 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: (Franz Osorio)
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.