Minimum Distance Estimation of Dynamic Models with Errors-in-Variables

37 Pages Posted: 4 Apr 2015 Last revised: 25 Aug 2015

See all articles by Nikolay Gospodinov

Nikolay Gospodinov

Federal Reserve Bank of Atlanta

Ivana Komunjer

University of California, San Diego (UCSD) - Department of Economics

Serena Ng

Columbia Business School - Economics Department

Date Written: August 1, 2014

Abstract

Empirical analysis often involves using inexact measures of desired predictors. The bias created by the correlation between the problematic regressors and the error term motivates the need for instrumental variables estimation. This paper considers a class of estimators that can be used when external instruments may not be available or are weak. The idea is to exploit the relation between the parameters of the model and the least squares biases. In cases when this mapping is not analytically tractable, a special algorithm is designed to simulate the latent predictors without completely specifying the processes that induce the biases. The estimators perform well in simulations of the autoregressive distributed lag model and the dynamic panel model. The methodology is used to re-examine the Phillips curve, in which the real activity gap is latent.

Keywords: measurement error, minimum distance, simulation estimation, dynamic panel

JEL Classification: C1, C3

Suggested Citation

Gospodinov, Nikolay and Komunjer, Ivana and Ng, Serena, Minimum Distance Estimation of Dynamic Models with Errors-in-Variables (August 1, 2014). FRB Atlanta Working Paper No. 2014-11. Available at SSRN: https://ssrn.com/abstract=2580367 or http://dx.doi.org/10.2139/ssrn.2580367

Nikolay Gospodinov (Contact Author)

Federal Reserve Bank of Atlanta ( email )

Atlanta, GA 30309
United States

HOME PAGE: https://www.frbatlanta.org/research/economists/gospodinov-nikolay.aspx?panel=1

Ivana Komunjer

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
(+1 858) 822-0667 (Phone)
(+1 858) 534-0712 (Fax)

HOME PAGE: http://econ.ucsd.edu/komunjer

Serena Ng

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

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