The robustness of the higher-order 2SLS and general k-class bias approximations to non-normal disturbances

Phillips, Garry and Liu-Evans, Gareth 2011. The robustness of the higher-order 2SLS and general k-class bias approximations to non-normal disturbances. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

In a seminal paper Nagar (1959) obtained first and second moment approximations for the k-class of estimators in a general static simultaneous equation model under the assumption that the structural disturbances were i.i.d and normally distributed. Later Mikhail (1972) obtained a higher-order bias approximation for 2SLS under the same assumptions as Nagar while Iglesias and Phillips (2010) obtained the higher order approximation for the general k-class of estimators. These approximations show that the higher order biases can be important especially in highly overidentified cases. In this paper we show that Mikhail�'s higher order bias approximation for 2SLS continues to be valid under symmetric, but not necessarily normal, disturbances with an arbtrary degree of kurtosis but not when the disturbances are asymmetric. A modified approximation for the 2SLS bias is then obtained which includes the case of asymmetric disturbances. The results are then extended to the general k-class of estimators.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	16 Feb 2022 07:18
URI:	https://orca.cardiff.ac.uk/id/eprint/77898

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