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A simple improvement of the IV estimator for the classical errors-in-variables problem

Listed author(s):
  • Andersson, Jonas


    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Møen, Jarle


    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Two measures of an error-ridden explanatory variable make it possible to solve the classical errors-in-variable problem by using one measure as an instrument for the other. It is well known that a second IV estimate can be obtained by reversing the roles of the two measures. We explore a simple estimator that is the linear combination of these two estimates, that minimizes the asymptotic mean squared error. In a Monte Carlo study we show that the gain in precision is significant compared to using only one of the original IV estimates. The proposed estimator also compares well with full information maximum likelihood under normality.

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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2009/10.

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Length: 18 pages
Date of creation: 15 Sep 2009
Handle: RePEc:hhs:nhhfms:2009_010
Contact details of provider: Postal:
NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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