TY - JOUR
AU - West,Kenneth D.
TI - Full Versus Limited Information Estimation of a Rational Expectations Model: Some Numerical Comparisons
JF - National Bureau of Economic Research Technical Working Paper Series
VL - No. 54
PY - 1986
Y2 - February 1986
DO - 10.3386/t0054
UR - http://www.nber.org/papers/t0054
L1 - http://www.nber.org/papers/t0054.pdf
N1 - Author contact info:
Kenneth D. West
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-0033
Fax: 608/262-2033
E-Mail: kdwest@wisc.edu
AB - This paper compares numerically the asymptotic distributions of parameter estimates and test statistics associated with two estimation techniques: (a)a limited information one, which uses instrumental variables to estimate a single equation (Hansen and Singleton (1982)), and (b)a full information one, which uses a procedure asymptotically equivalent to maximum likelihood to simultaneously estimate multiple equations (Hansen and Sargent (1980)). The paper compares the two with respect to both (1)asymptotic efficiency under the null hypothesis of no misspecification, and (2)asymptotic bias and power in the presence of certain local alternatives. It is found that: (l)Full information standard errors are only moderately smaller than limited information standard errors. (2)When the model is misspecified, full information tests tend to be more powerful, and its parameter estimates tend to be more biased. This suggests that at least in the model considered here, the gains from the use of the less robust and computationally more complex full information technique are not particularly large.
ER -