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Instrument selection for estimation of a forward-looking Phillips Curve

Tiago Berriel, Marcelo Medeiros () and Marcelo J. Sena

Economics Letters, 2016, vol. 145, issue C, 123-125

Abstract: We show that data-driven instrument selection based on the LASSO estimator can perform well comparative to the usual ad hoc instrument set for single equation estimation of a forward-looking Phillips Curve, when the overall identification condition is strong or in cases when the instruments are not very weak. We conclude that in face of model uncertainty and/or some potentially weak instruments within a large number of candidates, data-driven selection may provide a disciplined and more reliable estimation strategy.

Keywords: Instruments; Model selection; Shrinkage (search for similar items in EconPapers)
JEL-codes: C22 C26 (search for similar items in EconPapers)
Date: 2016
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