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A simple improvement of the IV estimator for the classical errors-in-variables problem

Andersson, Jonas; Møen, Jarle
Working paper
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URI
http://hdl.handle.net/11250/163981
Date
2009-09
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  • Discussion papers (FOR) [509]
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 signifcant

compared to using only one of the original IV estimates. The proposed estimator

also compares well with full information maximum likelihood under normality.
Publisher
Norwegian School of Economics and Business Administration. Department of Finance and Management Science
Series
Discussion paper
2009:10

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