Correcting Small Sample Bias in Linear Models With Many Covariates

Miren Azkarate-Askasua () and Miguel Zerecero ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Estimations of quadratic forms in the parameters of linear models exhibit small-sample bias. The direct computation for a bias correction is not feasible when the number of covariates is large. We propose a boot-strap method for correcting this bias that accommodates different assumptions on the structure of the error term including general heteroscedasticity and serial correlation. Our approach is suited to correct variance decompositions and the bias of multiple quadratic forms of the same linear model without increasing the computational cost. We show with Monte Carlo simulations that our bootstrap procedure is effective in correcting the bias and find that is faster than other methods in the literature. Using administrative data for France, we apply our method by carrying out a variance decomposition of a linear model of log wages with person and firm fixed effects. We find that the person and firm effects are less important in explaining the variance of log wages after correcting for the bias and depending on the specification their correlation becomes positive after the correction.

Keywords: Variance components; Many regressors; Fixed effects; Bias correction (search for similar items in EconPapers)
JEL-codes: C13 C23 C55 J30 J31 (search for similar items in EconPapers)
Pages: 35
Date: 2022-11
New Economics Papers: this item is included in nep-ecm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp376 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2022_376

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().