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Inconsistency transmission and variance reduction in two-stage quantile regression

Author

Listed:
  • Tae-Hwan Kim

    (Yonsei University)

  • Christophe Muller

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we propose a new variance reduction method for quantile regressions with endogeneity problems, for alpha-mixing or m-dependent covariates and error terms. First, we derive the asymptotic distribution of two-stage quantile estimators based on the fitted-value approach under very general conditions. Second, we exhibit an inconsistency transmission property derived from the asymptotic representation of our estimator. Third, using a reformulation of the dependent variable, we improve the efficiency of the two-stage quantile estimators by exploiting a tradeoff between an inconsistency confined to the intercept estimator and a reduction of the variance of the slope estimator. Monte Carlo simulation results show the fine performance of our approach. In particular, by combining quantile regressions with first-stage trimmed least-squares estimators, we obtain more accurate slope estimates than 2SLS, 2SLAD and other estimators for a broad set of distributions. Finally, we apply our method to food demand equations in Egypt.

Suggested Citation

  • Tae-Hwan Kim & Christophe Muller, 2020. "Inconsistency transmission and variance reduction in two-stage quantile regression," Post-Print hal-02084505, HAL.
  • Handle: RePEc:hal:journl:hal-02084505
    DOI: 10.1080/03610918.2018.1493505
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02084505v1
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    References listed on IDEAS

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    Keywords

    Two-stage estimation; Variance reduction; Quantile regression; Asymptotic bias;
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