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Two-Step and Related Estimators in Contemporary Rational-Expectations Models: An Analysis of Small-Sample Properties

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  • Hoffman, Dennis L

Abstract

This article examine the performance of ordinary least squares, generalized least squares, and Pagan's (1986) double-length estimator (DLE) in several rational-expectations models The three approaches are equivalent in the simplest of models but may differ appreciably in models typically encountered in applied work. Small-sample properties of the estimators are examined in several contemporary macroeconomic models. The following conclusions are reached: (1) All estimators exhibit similar sampling distributions in a monetary-neutrality framework, (2) the least squares procuders maintain smaller sampling variance and deliver more reliable tests in a permanent-income model in very small samples, (3) DLE generally delivers superior performance in a nonlinear aggregate-supply model with unanticipated "shock" regressors, and (4) overall, DLE outperforms the LS alternatives except in the smallest of samples.

Suggested Citation

  • Hoffman, Dennis L, 1991. "Two-Step and Related Estimators in Contemporary Rational-Expectations Models: An Analysis of Small-Sample Properties," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 51-61, January.
    • Handle: RePEc:bes:jnlbes:v:9:y:1991:i:1:p:51-61
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    Cited by:

    1. Holt, Matthew T., 1992. "Modelling Risk Response in the Marketing Channel for Beef: A Multivariate Generalize Arch-M Approach," Staff Papers 200546, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    2. Holt, Matthew T. & Aradhyula, Satheesh V., 1991. "Endogenous Risk in a Rational-Expectation Model of the U.S. Broiler Market: A Multivariate Arch-M Approach," Staff Papers 200538, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.

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