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Sensitivity of GLS estimators in random effects models

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  • Vasnev, Andrey L.

Abstract

This paper studies the sensitivity of random effects estimators in the one-way error component regression model. Maddala and Mount (1973)Â [6] give simulation evidence that in random effects models the properties of the feasible GLS estimator are not affected by the choice of the first-step estimator used for the covariance matrix. Taylor (1980)Â [8] gives a theoretical example of this effect. This paper provides a reason for this in terms of sensitivity. The properties of are transferred via an uncorrelated (and independent under normality) link, called sensitivity. The sensitivity statistic counteracts the improvement in . A Monte Carlo experiment illustrates the theoretical findings.

Suggested Citation

  • Vasnev, Andrey L., 2010. "Sensitivity of GLS estimators in random effects models," Journal of Multivariate Analysis, Elsevier, vol. 101(5), pages 1252-1262, May.
    • Handle: RePEc:eee:jmvana:v:101:y:2010:i:5:p:1252-1262
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    References listed on IDEAS

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    1. Jan R. Magnus & Andrey L. Vasnev, 2007. "Local sensitivity and diagnostic tests," Econometrics Journal, Royal Economic Society, vol. 10(1), pages 166-192, March.
    2. Baltagi, Badi H., 1981. "Pooling : An experimental study of alternative testing and estimation procedures in a two-way error component model," Journal of Econometrics, Elsevier, vol. 17(1), pages 21-49, September.
    3. Karim M. Abadir & Jan R. Magnus, 2002. "Notation in econometrics: a proposal for a standard," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 76-90, June.
    4. Taylor, William E., 1980. "Small sample considerations in estimation from panel data," Journal of Econometrics, Elsevier, vol. 13(2), pages 203-223, June.
    5. Jan R. Magnus, 1986. "The Exact Moments of a Ratio of Quadratic Forms in Normal Variables," Annals of Economics and Statistics, GENES, issue 4, pages 95-109.
    6. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    7. Banerjee, Anurag N. & Magnus, Jan R., 1999. "The sensitivity of OLS when the variance matrix is (partially) unknown," Journal of Econometrics, Elsevier, vol. 92(2), pages 295-323, October.
    8. E. Castillo & A. J. Conejo & C. Castillo & R. Mínguez & D. Ortigosa, 2006. "Perturbation Approach to Sensitivity Analysis in Mathematical Programming," Journal of Optimization Theory and Applications, Springer, vol. 128(1), pages 49-74, January.
    9. Don, F & Magnus, Jan, 1977. "On the Unbiasedness of Iterated GLS Estimators," University of Amsterdam, Actuarial Science and Econometrics Archive 293048, University of Amsterdam, Faculty of Economics and Business.
    10. repec:adr:anecst:y:1986:i:4:p:05 is not listed on IDEAS
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    1. Magnus, Jan R. & Vasnev, Andrey L., 2015. "Interpretation and use of sensitivity in econometrics, illustrated with forecast combinations," International Journal of Forecasting, Elsevier, vol. 31(3), pages 769-781.

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