A Comparison of Alternative Instruments Variables Estimators of a Dynamic Linear Model
Using a dynamic linear equation that has a conditionally homoskedastic moving average disturbance, we compare two parameterizations of a commonly used instrumental variables estimator (Hansen (1982)) to one that is asymptotically optimal in a class of estimators that includes the conventional one (Hansen (1985)). We find that for some plausible data generating processes, the optimal one is distinctly more efficient asymptotically. Simulations indicate that in samples of size typically available, asymptotic theory describes the distribution of the parameter estimates reasonably well, but that test statistics sometimes are poorly sized.
West, Kenneth D. and David W. Wilcox. "A Comparison Of Alternative Instrumental Variables Estimators Of A Dynamic Linear Model," Journal of Business and Economic Statistics, 1996, v14(3,Jul), 281-293.