Estimates of the Bias of Lagged Dependent Variable Coefficient Estimates in Macroeconomic Equations

Ray Fair ()

No 1005, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A stochastic-simulation method is proposed in this paper for obtaining median unbiased estimates of lagged dependent variable coefficients in macroeconomic models. Estimated biases for 13 equations of a macroeconomic model are computed. These biases are on average somewhat smaller in absolute bias than would be expected from Andrews' exact results for an equation with only a constant term, time trend, and lagged dependent variable, although they are larger than would be expected from Hurwicz's original estimates. In a practical sense the estimated biases are not very large because they have little effect on the overall predictive accuracy of the model and on its multiplier properties.

Pages: 19 pages
Date: 1992-02
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