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A general method for third-order bias and variance corrections on a nonlinear estimator

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  • Yang, Zhenlin

Abstract

Motivated by a recent study of Bao and Ullah (2007a) on finite sample properties of MLE in the pure SAR (spatial autoregressive) model, a general method for third-order bias and variance corrections on a nonlinear estimator is proposed based on stochastic expansion and bootstrap. Working with concentrated estimating equation simplifies greatly the high-order expansions for bias and variance; a simple bootstrap procedure overcomes a major difficulty in analytically evaluating expectations of various quantities in the expansions. The method is then studied in detail using a more general SAR model, with its effectiveness in correcting bias and improving inference fully demonstrated by extensive Monte Carlo experiments. Compared with the analytical approach, the proposed approach is much simpler and has a much wider applicability. The validity of the bootstrap procedure is formally established. The proposed method is then extended to the case of more than one nonlinear estimator.

Suggested Citation

  • Yang, Zhenlin, 2015. "A general method for third-order bias and variance corrections on a nonlinear estimator," Journal of Econometrics, Elsevier, vol. 186(1), pages 178-200.
    • Handle: RePEc:eee:econom:v:186:y:2015:i:1:p:178-200
    DOI: 10.1016/j.jeconom.2014.07.003
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    2. Christoph Strumann, 2019. "Hodges–Lehmann Estimation of Static Panel Models with Spatially Correlated Disturbances," Computational Economics, Springer;Society for Computational Economics, vol. 53(1), pages 141-168, January.
    3. Baltagi, Badi H. & Pirotte, Alain & Yang, Zhenlin, 2021. "Diagnostic tests for homoskedasticity in spatial cross-sectional or panel models," Journal of Econometrics, Elsevier, vol. 224(2), pages 245-270.
    4. Shew Fan Liu & Zhenlin Yang, 2015. "Asymptotic Distribution and Finite Sample Bias Correction of QML Estimators for Spatial Error Dependence Model," Econometrics, MDPI, vol. 3(2), pages 1-36, May.
    5. Rossi, Francesca & Robinson, Peter M., 2023. "Higher-order least squares inference for spatial autoregressions," Journal of Econometrics, Elsevier, vol. 232(1), pages 244-269.
    6. Kiviet, Jan F. & Phillips, Garry D.A., 2014. "Improved variance estimation of maximum likelihood estimators in stable first-order dynamic regression models," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 424-448.
    7. Grant Hillier & Federico Martellosio, 2013. "Properties of the maximum likelihood estimator in spatial autoregressive models," CeMMAP working papers CWP44/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    8. Kyoo Il Kim, 2016. "Higher Order Bias Correcting Moment Equation for M-Estimation and Its Higher Order Efficiency," Econometrics, MDPI, vol. 4(4), pages 1-19, December.
    9. Federico Martellosio & Grant Hillier, 2019. "Adjusted QMLE for the spatial autoregressive parameter," Papers 1909.08141, arXiv.org.
    10. Liu, Shew Fan & Yang, Zhenlin, 2015. "Improved inferences for spatial regression models," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 55-67.
    11. Francesca Rossi & Peter M. Robinson, 2020. "Higher-Order Least Squares Inference for Spatial Autoregressions," Working Papers 04/2020, University of Verona, Department of Economics.
    12. Ruby Chiu‐Hsing Weng & D. Stephen Coad, 2021. "Bias approximations for likelihood‐based estimators," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 48(4), pages 1474-1497, December.
    13. Ma, Yingying & Lan, Wei & Zhou, Fanying & Wang, Hansheng, 2020. "Approximate least squares estimation for spatial autoregressive models with covariates," Computational Statistics & Data Analysis, Elsevier, vol. 143(C).
    14. Yang, Zhenlin & Yu, Jihai & Liu, Shew Fan, 2016. "Bias correction and refined inferences for fixed effects spatial panel data models," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 52-72.
    15. Christian Brownlees & Vladislav Morozov, 2022. "Unit Averaging for Heterogeneous Panels," Papers 2210.14205, arXiv.org, revised May 2024.
    16. Martellosio, Federico & Hillier, Grant, 2020. "Adjusted QMLE for the spatial autoregressive parameter," Journal of Econometrics, Elsevier, vol. 219(2), pages 488-506.

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    More about this item

    Keywords

    Third-order bias; Third-order variance; Bootstrap; Concentrated estimating equation; Monte Carlo; Spatial layout; Stochastic expansion;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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