Document Type

Working Paper

Date

8-2012

Embargo Period

10-8-2012

Keywords

Bad leverage points, Hausman-Taylor, panel data, two stage generalized MS

Disciplines

Economics | Public Affairs, Public Policy and Public Administration

Description/Abstract

This paper suggests a robust Hausman and Taylor (1981) estimator, here-after HT that deals with the possible presence of outliers. This entails two modifications of the classical HT estimator. The first modification uses the Bramati and Croux (2007) robust Within MS estimator instead of the Within estimator in the first stage of the HT estimator. The second modification uses the robust Wagenvoort and Waldmann (2002) two stage generalized MS estimator instead of the 2SLS estimator in the second step of the HT estimator. Monte Carlo simulations show that, in the presence of vertical outliers or bad leverage points, the robust HT estimator yields large gains in MSE as compared to its classical Hausman-Taylor counterpart. We illustrate this robust version of the Hausman-Taylor estimator using an empirical application.

Source

local input

Creative Commons License


This work is licensed under a Creative Commons Attribution 3.0 License.