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A plug-in averaging estimator for regressions with heteroskedastic errors

Chu-An Liu ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a new model averaging estimator for the linear regression model with heteroskedastic errors. We address the issues of how to optimally assign the weights for candidate models and how to make inference based on the averaging estimator. We derive the asymptotic mean squared error (AMSE) of the averaging estimator in a local asymptotic framework, and then choose the optimal weights by minimizing the AMSE. We propose a plug-in estimator of the optimal weights and use these estimated weights to construct a plug-in averaging estimator of the parameter of interest. We derive the asymptotic distribution of the plug-in averaging estimator and suggest a plug-in method to construct confidence intervals. Monte Carlo simulations show that the plug-in averaging estimator has much smaller expected squared error, maximum risk, and maximum regret than other existing model selection and model averaging methods. As an empirical illustration, the proposed methodology is applied to cross-country growth regressions.

Keywords: Local asymptotic theory; Model averaging; Model selection; Plug-in estimators (search for similar items in EconPapers)
JEL-codes: C51 C52 (search for similar items in EconPapers)
Date: 2012-08-10
New Economics Papers: this item is included in nep-ecm and nep-ore
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