Uniform Inference in Linear Error-in-Variables Models: Divide-and-Conquer

2023/01/11 by Tom Boot, Boot, Tom, Artūras Juodis +1
Economics, Econometrics and Finance · #Econometrics (econ.EM) #Economic Policies and Impacts #FOS: Economics and business #Financial Markets and Investment Strategies #Monetary Policy and Economic Impact

paper · pdf · doi:10.48550/arxiv.2301.04439

openalex publication_date 2023/01/11 · openalex created_date 2023/01/13 · openalex updated_date 2026/07/28

Abstract

It is customary to estimate error-in-variables models using higher-order moments of observables. This moments-based estimator is consistent only when the coefficient of the latent regressor is assumed to be non-zero. We develop a new estimator based on the divide-and-conquer principle that is consistent for any value of the coefficient of the latent regressor. In an application on the relation between investment, (mismeasured) Tobin's q and cash flow, we find time periods in which the effect of Tobin's q is not statistically different from zero. The implausibly large higher-order moment estimates in these periods disappear when using the proposed estimator.

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