The Small Sample Properties of Selected Econometric Estimators in the Context of Alternative Macro-Models

Abstract

techniques, has in the past ignored the fundamental importance of the frame of reference for that evaluation. While Cragg [3, 4, 5, 6] has noted that the specific model used in a given small sample study has an effect upon the observed properties of the estimators, there has been little systematic testing of this proposition.2 The problem is particularly important in view of the diversity of econometric models.3 A decision rule derived from studies which implicitly assume the neutrality of simultaneous equation estimators across economic structures would appear to be of little value. The purpose of this paper is to commence an inquiry into the effect of econometric model upon estimator evaluation. Three single equation estimators have been chosen. The design of the experiments performed in this study precludes the use of full model estimators.4 The three techniques studied were: ordinary least squares applied to the structural form (DLS = direct least squares), two stage least square (2SLS) and limited information single equation estimates (LISE). The evaluation of these estimators will be undertaken with each of three macro-econometric models. The performance of the techniques will be noted in each frame of reference individually. The overall conclusions of each experiment will then be considered in conjunction with the characteristics of the models used. The three models used are: Model I from Klein's Economic Fluctuations in the United States (KF), a linearized version of the Klein-Goldberger Model of the United States (KG) and the Dutta-Su Model of Puerto Rico (DS).5 The paper is partitioned into four sections after these introductory remarks. The first of these, Section 2, discusses the primary characteristics of each of the three models. Section 3 outlines the design of each of the Monte Carlo experiments. It is followed by a discussion of the results derived from each. Finally, the last section specifies some tentative conclusions which might be postulated on the basis of the results.