Abstract
We propose two simple bias-reduction procedures that apply to estimators in a general static simultaneous equation model and that are valid under relatively weak distributional assumptions for the errors. Standard jackknife estimators, as applied to 2SLS, may not reduce the bias of the exogenous variable coefficient estimators since the estimator biases are not monotonically nonincreasing with sample size (a necessary condition for successful bias reduction) and they have moments only up to the order of overidentification. Our proposed approaches do not have either of these drawbacks. (1) In the first procedure, both endogenous and exogenous variable parameter estimators are unbiased to order T − 2 and when implemented for k-class estimators for which k < 1, the higher-order moments will exist. (2) An alternative second approach is based on taking linear combinations of k-class estimators for k < 1. In general, this yields estimators that are unbiased to order T − 1 and that possess higher moments. We also prove theoretically how the combined k-class estimator produces a smaller mean squared error than 2SLS when the degree of overidentification of the system is 0, 1, or at least 8. The performance of the two procedures is compared with 2SLS in a number of Monte Carlo experiments using a simple two-equation model. Finally, an application shows the usefulness of our new estimator in practice versus competitor estimators.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.