Almost Unbiased Estimation in Simultaneous Equations Models with Strong and / or Weak Instruments

Emma Iglesias and Garry Phillips

No E2011/19, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We propose two simple bias reduction procedures that apply to estimators in a general static simultaneous equation model and which are valid under reatively 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 non-increasing 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 and which 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 larger than 8. Moreover, the combined k-class estimators remain unbiased to order T -1 even if there are redundant variables (including weak instruments) in any part of the simultaneous equation system, and we can allow for any number of endogenous variables. 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.

Keywords: Combined k -class estimators; Bias correction; Weak instruments; Endogenous and exogenous parameter estimators; Permanent Income Hypothesis (search for similar items in EconPapers)
JEL-codes: C12 C13 C30 C51 D12 D31 D91 E21 E40 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-08
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://carbsecon.com/wp/E2011_19.pdf (application/pdf)

Related works:
Journal Article: Almost Unbiased Estimation in Simultaneous Equation Models With Strong and/or Weak Instruments (2012)
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:cdf:wpaper:2011/19

Access Statistics for this paper

More papers in Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section Contact information at EDIRC.
Bibliographic data for series maintained by Yongdeng Xu ().