COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 741 "Two Stage and Related Estimators and Their Applications" Adrian Pagan April 1985 Applied econometric research frequently encounters the difficulty that estimation of
the parameters of interest is complex owing to the presence of incidental parameters. It
is tempting therefore to try to circumvent the difficulties by proceeding in two stages.
In the first, some estimates are made of the incidental parameters. In the second, these
estimates are treated as though they were population values, leading to a large reduction
in the dimension of the unknown parameter space, possibly even down to that of the
parameters of interest only. The properties of such a staged process (particularly as they
relate to issues arising from the consistency and efficiency of the estimator and the
provision of reliable inference), applications involving the presence of current and
future anticipations, an alternative estimator, and diagnostic tests are all discussed in
this paper. |
