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Lag-Augmented Two- and Three-Stage Least Squares Estimators for Integrated Structural Dynamic Models

Author

Listed:
  • Cheng Hsiao

    (Department of Economics, University of Southern California)

  • Siyan Wang

    (Department of Economics, University of Delaware)

Abstract

We consider a lag-augmented two- or three-stage least squares estimator for a structural dynamic model of nonstationary and possibly cointegrated variables without the prior knowledge of unit roots or rank of cointegration. We show that the conventional two- and three-stage least squares estimators are consistent but contain nonstandard distributions without the strict exogeneity assumption, hence the conventional Wald type test statistics may not be chi-square distributed. We propose a lag order augmented two- or three-stage least squares estimator that is consistent and asymptotically normally distributed. Limited Monte Carlo studies are conducted to shed light on the finite sample properties of various estimators.

Suggested Citation

  • Cheng Hsiao & Siyan Wang, 2006. "Lag-Augmented Two- and Three-Stage Least Squares Estimators for Integrated Structural Dynamic Models," IEPR Working Papers 06.55, Institute of Economic Policy Research (IEPR).
    • Handle: RePEc:scp:wpaper:06-55
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    Cited by:

    1. Kristof Bartosik & Jan Mycielski, 2020. "The output employment elasticity and the increased use of temporary contracts: Evidence from Poland," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 70(1), pages 83-104, March.
    2. Matthew Oliver & Charles Mason & David Finnoff, 2014. "Pipeline congestion and basis differentials," Journal of Regulatory Economics, Springer, vol. 46(3), pages 261-291, December.
    3. repec:nbp:nbpbik:v:47:y:2016:i:6:p:435-462 is not listed on IDEAS
    4. Krzysztof Bartosik & Jerzy Mycielski, 2016. "Dynamika płac a długotrwałe bezrobocie w polskiej gospodarce," Bank i Kredyt, Narodowy Bank Polski, vol. 47(5), pages 435-462.

    More about this item

    Keywords

    Structural vector autoregressions; Nonstationary time series; Cointegration; Hypothesis testing; Two and Three Stage Least Squares;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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