On efficient estimation and correct inference in models with generated regressors: A general approach

Colin R. McKenzie, Michael McAleer

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

Two approaches have been developed for deriving the properties of efficiency and consistency of standard errors of two step estimators of linear models containing current or lagged unobserved expectations of a single variable. One method is based on the derivatives of the likelihood function and information matrix, while the other uses the true covariance matrix of the disturbance vector when unknown parameters or variables are replaced by corresponding estimates. In this paper, the second approach is extended to cases where the structural equation is nonlinear and the model contains expectations of more than one variable or expectations of future variables. The properties of a frequently used estimator to deal with missing observations problems, a model involving a variance as an explanatory variable, and a recently developed estimator for autoregressive moving average models can be easily derived using the results of the paper. Methods for improving the efficiency of two step estimators are outlined.

Original languageEnglish
Pages (from-to)368-389
Number of pages22
JournalJapanese Economic Review
Volume48
Issue number4
DOIs
Publication statusPublished - 1997 Jan 1
Externally publishedYes

Keywords

  • Efficiency
  • Generated regressors
  • Inference
  • Rational expectations models
  • Two step estimation

ASJC Scopus subject areas

  • Economics and Econometrics

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