Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
A simple improvement of the IV estimator for the classical errors-in-variables problem
() and Jarle Møen
Abstract: Two measures of an error-ridden explanatory variable make
it possible to solve the classical errors-in-variable problem by using one
measure as an instrument for the other. It is well known that a second IV
estimate can be obtained by reversing the roles of the two measures. We
explore a simple estimator that is the linear combination of these two
estimates, that minimizes the asymptotic mean squared error. In a Monte
Carlo study we show that the gain in precision is significant compared to
using only one of the original IV estimates. The proposed estimator also
compares well with full information maximum likelihood under normality.
Keywords: Measurement errors; Classical Errors-in-Variables; multiple indicator method; Instrumental variable techniques; (follow links to similar papers)
JEL-Codes: C13; C30; C80; (follow links to similar papers)
18 pages, September 15, 2009
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