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Estimation of Parameters in the Presence of Model misspecification and Measurement Error

Author

Listed:
  • P.A.V.B. Swamy
  • George S. Tavlas
  • Stephen G. Hall

  • George Hondroyiannis

Abstract

Misspecifications of econometric models can lead to biased coefficients and error terms, which in turn can lead to incorrect inference and incorrect models. There are specific techniques such as instrumental variables which attempt to deal with some individual forms of model misspecification. However these can typically only address one problem at a time. This paper proposes a general method for estimating underlying parameters in the presence of a range of unknown model misspecifications. It is argued that this method can consistently estimate the direct effect of an independent variable on a dependent variable with all of its other determinants held constant even in the presence of a misspecified functional form, measurement error and omitted variables.

Suggested Citation

  • P.A.V.B. Swamy & George S. Tavlas & Stephen G. Hall & George Hondroyiannis, 2008. "Estimation of Parameters in the Presence of Model misspecification and Measurement Error," Discussion Papers in Economics 08/27, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:08/27
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    Cited by:

    1. Stephen G. Hall & P. A. V. B. Swamy & George S. Tavlas, 2012. "Milton Friedman, the demand for money, and the ECB’s monetary policy strategy," Review, Federal Reserve Bank of St. Louis, vol. 94(May), pages 153-186.
    2. P.A.V.B. Swamy & Stephen G. Hall & George S. Tavlas & I-Lok Chang & Heather D. Gibson & William H. Greene & Jatinder S. Mehta, 2016. "A Method for Measuring Treatment Effects on the Treated without Randomization," Econometrics, MDPI, vol. 4(2), pages 1-23, March.
    3. Peter Smith, 2010. "Discussion of the Fisher Effect Puzzle: A Case of Non-Linear Relationship," Open Economies Review, Springer, vol. 21(1), pages 105-108, February.
    4. Ettredge, Michael & Fuerherm, Elizabeth Emeigh & Li, Chan, 2014. "Fee pressure and audit quality," Accounting, Organizations and Society, Elsevier, vol. 39(4), pages 247-263.
    5. Nermeen Harb & Mamdouh Abdelmoula M. Abdelsalam, 2019. "Effect Of Oil Prices On Stock Markets: Evidence From New Generation Of Star Model," Bulletin of Economic Research, Wiley Blackwell, vol. 71(3), pages 466-482, July.
    6. Stephen Hall & George Hondroyiannis & P. Swamy & George Tavlas, 2010. "The Fisher Effect Puzzle: A Case of Non-Linear Relationship?," Open Economies Review, Springer, vol. 21(1), pages 91-103, February.
    7. Hall, Stephen G. & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Measuring currency pressures: The cases of the Japanese yen, the Chinese yuan, and the UK pound," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 1-20.
    8. Mikio Ito, 2022. "Detecting Structural Breaks in Foreign Exchange Markets by using the group LASSO technique," Papers 2202.02988, arXiv.org.
    9. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2017. "Self-fulfilling dynamics: The interactions of sovereign spreads, sovereign ratings and bank ratings during the euro financial crisis," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 371-385.
    10. Stephen G. Hall & Heather D. Gibson & G. S. Tavlas & Mike G. Tsionas, 2020. "A Monte Carlo Study of Time Varying Coefficient (TVC) Estimation," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 115-130, June.
    11. Hall Stephen G. & Kenjegaliev Amangeldi & Swamy P. A. V. B. & Tavlas George S., 2013. "The forward rate premium puzzle: a case of misspecification?1)," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 265-279, May.
    12. Hall, Stephen G. & Hondroyiannis, George & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Is the relationship between prices and exchange rates homogeneous?," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 411-438.
    13. Hall, Stephen G. & Swamy, P. A. V. B. & Tavlas, George S., 2017. "Time-Varying Coefficient Models: A Proposal For Selecting The Coefficient Driver Sets," Macroeconomic Dynamics, Cambridge University Press, vol. 21(5), pages 1158-1174, July.
    14. P. Swamy & Stephen Hall, 2012. "Measurement of causal effects," Economic Change and Restructuring, Springer, vol. 45(1), pages 3-23, February.
    15. Stephen Hall & P. Swamy & George Tavlas, 2012. "Generalized cointegration: a new concept with an application to health expenditure and health outcomes," Empirical Economics, Springer, vol. 42(2), pages 603-618, April.
    16. Swamy, P.A.V.B. & Mehta, J.S. & Tavlas, G.S. & Hall, S.G., 2015. "Two applications of the random coefficient procedure: Correcting for misspecifications in a small area level model and resolving Simpson's paradox," Economic Modelling, Elsevier, vol. 45(C), pages 93-98.
    17. Mamdouh Abdelmoula M. ABDELSALAM, 2017. "Improving Phillips Curve’s Inflation Forecasts under Misspecification," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 54-76, September.
    18. Wenti Du & Eric Pentecost & Graham Bird, 2025. "Removing Bias in Estimating Financial Contagion: An Empirical Analysis Based on European Economies," Open Economies Review, Springer, vol. 36(4), pages 1081-1096, September.
    19. David, S.A. & Machado, J.A.T. & Quintino, D.D. & Balthazar, J.M., 2016. "Partial chaos suppression in a fractional order macroeconomic model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 122(C), pages 55-68.

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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