Instrumental Variables Estimation of Heteroskedastic Linear Models Using All Lags of Instruments

Kenneth West (), Ka-fu Wong and Stanislav Anatolyev

No 13134, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose and evaluate a technique for instrumental variables estimation of linear models with conditional heteroskedasticity. The technique uses approximating parametric models for the projection of right hand side variables onto the instrument space, and for conditional heteroskedasticity and serial correlation of the disturbance. Use of parametric models allows one to exploit information in all lags of instruments, unconstrained by degrees of freedom limitations. Analytical calculations and simulations indicate that there sometimes are large asymptotic and finite sample efficiency gains relative to conventional estimators (Hansen (1982)), and modest gains or losses depending on data generating process and sample size relative to quasi-maximum likelihood. These results are robust to minor misspecification of the parametric models used by our estimator.

JEL-codes: C13 C32 (search for similar items in EconPapers)
Date: 2007-05
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Published as Kenneth West & Ka-fu Wong & Stanislav Anatolyev, 2009. "Instrumental Variables Estimation of Heteroskedastic Linear Models Using All Lags of Instruments," Econometric Reviews, Taylor and Francis Journals, vol. 28(5), pages 441-467.

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Related works:
Working Paper: Instrumental Variables Estimation of Heteroskedastic Linear Models Using All Lags of Instruments (2007)
Working Paper: Instrumental variables estimation of heteroskedastic linear models using all lags of instruments (2001)
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