NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations

Maurice Obstfeld, Robert E. Cumby, John Huizinga

NBER Technical Working Paper No. 11
Issued in July 1983
NBER Program(s):   ITI   IFM

This paper introduces a limited-information two-step estimator for models with rational expectations and serially correlated disturbances. The estimator greatly extends the area of applicability of McCallum's (1976) instrumental variables approach to rational expectations models. Section I reviews McCallum%s method and discusses in detail the problems surrounding its use in many empirical c/ntexts. Section II presents the two-step two-stage least squares estimator (2S2S1) and demonstrates its efficiency relative to that of McCallum (1979). Section III provides a comparison nf several estim!tors for a two equation macroeconomic model with rational expectations due to Taylor (1979).

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Document Object Identifier (DOI): 10.3386/t0011

Published: Cumby, Robert E., John Huizinga and Maurice Obstfeld. "Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations." Journal of Econometrics, Vol. 21, (1983) pp. 333-355.

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