Estimation of Parameters in the Presence of Model misspecification and Measurement Error

P.A.V.B. Swamy, George Tavlas, Stephen Hall and George Hondroyiannis

No 08/27, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Misspecifications of econometric models can lead to biased coefficients and error terms, which in turn can lead to incorrect inference and incorrect models. There are specific techniques such as instrumental variables which attempt to deal with some individual forms of model misspecification. However these can typically only address one problem at a time. This paper proposes a general method for estimating underlying parameters in the presence of a range of unknown model misspecifications. It is argued that this method can consistently estimate the direct effect of an independent variable on a dependent variable with all of its other determinants held constant even in the presence of a misspecified functional form, measurement error and omitted variables.

Keywords: Misspecified model; Correct interpretation of coefficients; Appropriate assumption; Time-varying coefficient model; Coefficient driver (search for similar items in EconPapers)
JEL-codes: C13 C19 C22 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Estimation of Parameters in the Presence of Model Misspecification and Measurement Error (2010)
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