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Errors-in-Variables Estimation with No Instruments

  • Ramazan Gencay

    ()

    (Department of Economics, Simon Fraser University)

  • Nikola Gradojevic

    ()

    (Faculty of Business Administration, Lakehead University)

This paper develops a wavelet (spectral) approach to estimate the parameters of a linear regression model where the regress and and the regressors are persistent processes and contain a measurement error. We propose a wavelet filtering approach which does not require instruments and yields unbiased and consistent estimates for the intercept and the slope parameters. Our Monte Carlo results also show that the wavelet approach is particularly effective when measurement errors for the regress and and the regressor are serially correlated. With this paper, we hope to bring a fresh perspective and stimulate further theoretical research in this area.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 30_09.

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Date of creation: Jan 2009
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Handle: RePEc:rim:rimwps:30_09
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  1. Gencay, Ramazan & Selcuk, Faruk & Whitcher, Brandon, 2005. "Multiscale systematic risk," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 55-70, February.
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  8. Cashin, Paul & McDermott, C. John & Pattillo, Catherine, 2004. "Terms of trade shocks in Africa: are they short-lived or long-lived?," Journal of Development Economics, Elsevier, vol. 73(2), pages 727-744, April.
  9. Horowitz, Joel L & Manski, Charles F, 1995. "Identification and Robustness with Contaminated and Corrupted Data," Econometrica, Econometric Society, vol. 63(2), pages 281-302, March.
  10. Duchesne, Pierre, 2006. "On Testing For Serial Correlation With A Wavelet-Based Spectral Density Estimator In Multivariate Time Series," Econometric Theory, Cambridge University Press, vol. 22(04), pages 633-676, August.
  11. John G. Cragg, 1994. "Making Good Inferences from Bad Data," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 776-800, November.
  12. Hong, Yongmiao & Lee, Jin, 2001. "One-Sided Testing For Arch Effects Using Wavelets," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1051-1081, December.
  13. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  14. Wayne E. Ferson & Dennis H. Locke, 1998. "Estimating the Cost of Capital Through Time: An Analysis of the Sources of Error," Management Science, INFORMS, vol. 44(4), pages 485-500, April.
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  16. Duchesne, Pierre, 2006. "Testing for multivariate autoregressive conditional heteroskedasticity using wavelets," Computational Statistics & Data Analysis, Elsevier, vol. 51(4), pages 2142-2163, December.
  17. Ramazan Genay & Faruk Seļuk & Brandon Whitcher, 2003. "Systematic risk and timescales," Quantitative Finance, Taylor & Francis Journals, vol. 3(2), pages 108-116.
  18. Xiaohong Chen & Han Hong & Elie Tamer, 2005. "Measurement Error Models with Auxiliary Data," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 343-366.
  19. Yongmiao Hong & Chihwa Kao, 2000. "Wavelet-Based Testing for Serial Correlation of Unknown Form in Panel Models," Center for Policy Research Working Papers 32, Center for Policy Research, Maxwell School, Syracuse University.
  20. Yongmiao Hong & Jin Lee, 2000. "Wavelet-based Estimation for Heteroskedasticity and Autocorrelation Consistent Variance-Covariance Matrices," Econometric Society World Congress 2000 Contributed Papers 1211, Econometric Society.
  21. Elliott, Graham & Stock, James H., 1994. "Inference in Time Series Regression When the Order of Integration of a Regressor is Unknown," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 672-700, August.
  22. Carmichael, Benoît & Coën, Alain, 2008. "Asset pricing models with errors-in-variables," Journal of Empirical Finance, Elsevier, vol. 15(4), pages 778-788, September.
  23. Levi, Maurice D, 1973. "Errors in the Variables Bias in the Presence of Correctly Measured Variables," Econometrica, Econometric Society, vol. 41(5), pages 985-86, September.
  24. Sepanski, J. H. & Carroll, R. J., 1993. "Semiparametric quasilikelihood and variance function estimation in measurement error models," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 223-256, July.
  25. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  26. Lee, Jin & Hong, Yongmiao, 2001. "Testing For Serial Correlation Of Unknown Form Using Wavelet Methods," Econometric Theory, Cambridge University Press, vol. 17(02), pages 386-423, April.
  27. Schennach, Susanne M., 2004. "Exponential specifications and measurement error," Economics Letters, Elsevier, vol. 85(1), pages 85-91, October.
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