Instrument selection for estimation of a forward-looking Phillips Curve
Marcelo Medeiros () and
Marcelo J. Sena
Economics Letters, 2016, vol. 145, issue C, 123-125
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:123-125
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