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Approximate Bias Correction in Econometrics

Author

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  • James G. MacKinnon
  • Anthony A. Smith, Jr.

Abstract

This paper discusses ways to reduce the bias of consistent estimators that are biased in finite samples. It is necessary that the bias function, which relates parameter values to bias, should be estimable by computer simulation or by some other method. If so, bias can be reduced or, in some cases that may not be unrealistic, even eliminated. In general, several evaluations of the bias function will be required to do this. Unfortunately, reducing bias may increase the variance, or even the mean squared error, of an estimator. Whether or not it does so depends on the shape of the bias functions. The techniques of the paper are illustrated by applying them to two problems: estimating the autoregressive parameter in an AR(1) model with a constant term, and estimation of a logit model.
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Suggested Citation

  • James G. MacKinnon & Anthony A. Smith, Jr., "undated". "Approximate Bias Correction in Econometrics," GSIA Working Papers 1997-36, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:91
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    References listed on IDEAS

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    1. repec:cup:etheor:v:10:y:1994:i:1:p:116-29 is not listed on IDEAS
    2. repec:cup:etheor:v:9:y:1993:i:1:p:62-80 is not listed on IDEAS
    3. Smith, Anthony A, Jr & Sowell, Fallaw & Zin, Stanley E, 1997. "Fractional Integration with Drift: Estimation in Small Samples," Empirical Economics, Springer, vol. 22(1), pages 103-116.
    4. MacKinnon, James G. & Smith Jr., Anthony A., 1998. "Approximate bias correction in econometrics," Journal of Econometrics, Elsevier, vol. 85(2), pages 205-230, August.
    5. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 63-84, Suppl. De.
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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