A Comparison of Alternative Instruments Variables Estimators of a Dynamic Linear Model

57 Pages Posted: 5 Jul 2000 Last revised: 27 Jun 2010

See all articles by Kenneth D. West

Kenneth D. West

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

David W. Wilcox

Federal Reserve Board - Division of Research and Statistics

Date Written: March 1995

Abstract

Using a dynamic linear equation that has a conditionally homoskedastic moving average disturbance, we compare two parameterizations of a commonly used instrumental variables estimator (Hansen (1982)) to one that is asymptotically optimal in a class of estimators that includes the conventional one (Hansen (1985)). We find that for some plausible data generating processes, the optimal one is distinctly more efficient asymptotically. Simulations indicate that in samples of size typically available, asymptotic theory describes the distribution of the parameter estimates reasonably well, but that test statistics sometimes are poorly sized.

Suggested Citation

West, Kenneth D. and Wilcox, David W., A Comparison of Alternative Instruments Variables Estimators of a Dynamic Linear Model (March 1995). NBER Working Paper No. t0176. Available at SSRN: https://ssrn.com/abstract=225086

Kenneth D. West (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
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608-262-0033 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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David W. Wilcox

Federal Reserve Board - Division of Research and Statistics ( email )

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Mailstop 153
Washington, DC 20551
United States

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