Two-Step and Related Estimators in Contemporary Rational-Expectations Models: An Analysis of Small-Sample Properties

Dennis Hoffman

Journal of Business & Economic Statistics, 1991, vol. 9, issue 1, 51-61

Abstract: This article examine the performance of ordinary least squares, generalized least squares, and Pagan's (1986) double-length estimator (DLE) in several rational-expectations models The three approaches are equivalent in the simplest of models but may differ appreciably in models typically encountered in applied work. Small-sample properties of the estimators are examined in several contemporary macroeconomic models. The following conclusions are reached: (1) All estimators exhibit similar sampling distributions in a monetary-neutrality framework, (2) the least squares procuders maintain smaller sampling variance and deliver more reliable tests in a permanent-income model in very small samples, (3) DLE generally delivers superior performance in a nonlinear aggregate-supply model with unanticipated "shock" regressors, and (4) overall, DLE outperforms the LS alternatives except in the smallest of samples.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:9:y:1991:i:1:p:51-61

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