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Newey–West covariance matrix estimates for models with generated regressors
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Smith, Jeremy and McAleer, M. (1994) Newey–West covariance matrix estimates for models with generated regressors. Applied Economics, Volume 26 (Number 6). pp. 635-640. doi:10.1080/00036849400000034 ISSN 0003-6846.
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Official URL: http://dx.doi.org/10.1080/00036849400000034
Abstract
The performance of the Newey and West (1987) heteroscedasticity and autocorrelation consistent covariance matrix for models with generated regressors is examined. The presence of a generated regressor results in the covariance matrix of the disturbance term being non-spherical, with both non-zero off-diagonal and non-constant diagonal elements. The Newey-West procedure is potentially a simple method of calculating consistent standard errors, and is available in a wide range of econometric software programs. For this reason, it would seem to be sensible to examine the small-sample performance of the Newey-West standard errors. However, the evidence from Monte Carlo experiments suggests that the Newey-West procedure performs no better than the (incorrect) two-step ordinary least squares (OLS) procedure, a finding which is supported by two illustrative empirical applications.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Applied Economics | ||||
Publisher: | Taylor & Francis Ltd. | ||||
ISSN: | 0003-6846 | ||||
Official Date: | 1994 | ||||
Dates: |
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Volume: | Volume 26 | ||||
Number: | Number 6 | ||||
Number of Pages: | 6 | ||||
Page Range: | pp. 635-640 | ||||
DOI: | 10.1080/00036849400000034 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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