Usage of an Estimated Coefficient as a Dependent Variable

Posted: 20 Aug 2014

See all articles by Abigail S. Hornstein

Abigail S. Hornstein

Wesleyan University

William H. Greene

New York University Stern School of Business

Date Written: March 26, 2012

Abstract

Two-step estimation with large panel data sets generally involves estimating vectors of individual-specific coefficients in a first-stage. In a second-stage estimation a vector of estimated coefficients is used as the dependent variable. Potential problems of heteroskedasticity in the second stage may be mitigated by weighting all independent observations by the inverse of the variance of the dependent variable, which is obtained from the first stage estimation. This approach needs to be modified if the dependent variable in the second stage is a non-linear function of the estimated coefficient.

Keywords: Two-step estimation, Heteroskedasticity, Random parameters, GLS, OLS

JEL Classification: C1, C3, C4, C5

Suggested Citation

Hornstein, Abigail S. and Greene, William H., Usage of an Estimated Coefficient as a Dependent Variable (March 26, 2012). Economics Letters, Vol. 116, No. 3, 2012, Available at SSRN: https://ssrn.com/abstract=2482614

Abigail S. Hornstein (Contact Author)

Wesleyan University ( email )

Middletown, CT 06459
United States

William H. Greene

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0876 (Phone)

HOME PAGE: http://people.stern.nyu.edu/wgreene

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