Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations

38 Pages Posted: 4 Oct 2001

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert E. Cumby

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

John P. Huizinga

University of Chicago - Booth School of Business

Date Written: July 1983

Abstract

This paper introduces a limited-information two-step estimator for models with rational expectations and serially correlated disturbances. The estimator greatly extends the area of applicability of McCallum's (1976) instrumental variables approach to rational expectations models. Section I reviews McCallum's method and discusses in detail the problems surrounding its use in many empirical contexts. Section II presents the two-step two-stage least squares estimator (2S2S1) and demonstrates its efficiency relative to that of McCallum (1979). Section III provides a comparison nf several estimators for a two equation macroeconomic model with rational expectations due to Taylor (1979).

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Suggested Citation

Obstfeld, Maurice and Cumby, Robert E. and Huizinga, John, Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations (July 1983). NBER Working Paper Series, Vol. t0011, pp. -, 1983. Available at SSRN: https://ssrn.com/abstract=275351

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Robert E. Cumby

Georgetown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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John Huizinga

University of Chicago - Booth School of Business ( email )

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773-702-2225 (Fax)

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