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From |
Herberto Gomez <herbogomez@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: Not a stata question but need help with basic econometrics. Bias with lagged dependent variables. |

Date |
Tue, 17 Jan 2012 07:15:41 -0600 |

Hello, In a basic regression with lagged dependent variables of the form yt = a + b yt-1 + ut I understand why OLS estimator gives biased estimate for b. But in many places, including in Wooldridge's Modern Econometrics, I read that estimate of b will be downward biased. This is how his sentence reads: Unfortunately, beta_1 hat is biased, and this bias can be large if the sample size is small or beta_1 is near 1. (For beta_1 near 1 beta_1 hat can have severe downward bias. I am trying to understand this bias in terms of E(b) = b + cov(yt-1, u) / var (yt-1). The downward bias suggests that cov(yt-1, u) should be negative. But, I do not see why that should be. In other places I read that estimate of b is attenuated. I do not see that either. Also, how does this bias relate to Nickell's bias in Panels? I hope some kind soul takes a few minutes to explain this to me. Best regards, Herb * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: Not a stata question but need help with basic econometrics. Bias with lagged dependent variables.***From:*Robson Glasscock <glasscockrc@vcu.edu>

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