Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations

Maurice Obstfeld, Robert Cumby () and John Huizinga

No 11, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper introduces a limited-information two-step estimator for models with rational expectations and serially correlated disturbances. The estimator greatly extends the area of applicability of McCallum's (1976) instrumental variables approach to rational expectations models. Section I reviews McCallum%s method and discusses in detail the problems surrounding its use in many empirical c/ntexts. Section II presents the two-step two-stage least squares estimator (2S2S1) and demonstrates its efficiency relative to that of McCallum (1979). Section III provides a comparison nf several estim!tors for a two equation macroeconomic model with rational expectations due to Taylor (1979).

Date: 1983-07
Note: ITI IFM
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Published as Cumby, Robert E., John Huizinga and Maurice Obstfeld. "Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations." Journal of Econometrics, Vol. 21, (1983) pp. 333-355.

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Journal Article: Two-step two-stage least squares estimation in models with rational expectations (1983)
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