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Working Paper
A note on the estimation of linear regression models with Heteroskedastic measurement errors
I consider the estimation of linear regression models when the independent variables are measured with errors whose variances differ across observations, a situation that arises, for example, when the explanatory variables in a regression model are estimates of population parameters based on samples of varying sizes. Replacing the error variance that is assumed common to all observations in the standard errors-in-variables estimator by the mean measurement error variance yields a consistent estimator in the case of measurement error heteroskedasticity. However, another estimator, which I call ...
Working Paper
The Role of Selective High Schools in Equalizing Educational Outcomes: Heterogeneous Effects by Neighborhood Socioeconomic Status
We investigate whether elite Chicago public high schools can help close the achievement gap between high-achieving students from more and less affluent neighborhoods. Seats are allocated based on prior achievement with 70 percent reserved for high-achieving applicants from four neighborhood socioeconomic status (SES) categories. Using regression discontinuity design, we find no effect on test scores or college attendance for students from high- or low-SES neighborhoods and positive effects on student reports of their experiences. For students from low-SES neighborhoods, we estimate ...
Working Paper
Confidence intervals for long-horizon predictive regressions via reverse regressions
Long-horizon predictive regressions in finance pose formidable econometric problems when estimated using the sample sizes that are typically available. A remedy that has been proposed by Hodrick (1992) is to run a reverse regression in which short-horizon returns are projected onto a long-run mean of some predictor. By covariance stationarity, the slope coefficient is zero in the reverse regression if and only if it is zero in the original regression, but testing the hypothesis in the reverse regression avoids small sample problems. Unfortunately this only allows us to test the null of no ...
Report
Complex eigenvalues and trend-reverting fluctuations
Autoregressions of quarterly or annual aggregate time series provide evidence of trend-reverting output growth and of short-term dynamic adjustment that appears to be governed by complex eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models, most of which have positive real characteristic roots. We study a class of one-sector economies, overlapping generations with finite life spans of L greater than or equal to 3, in which aggregate saving depends nontrivially on the distribution of wealth among cohorts. If consumption goods ...
Working Paper
Variable selection and model comparison in regression
In the specification of linear regression models it is common to indicate a list of candidate variables from which a subset enters the model with nonzero coefficients. This paper interprets this specification as a mixed continuous-discrete prior distribution for coefficient values. It then utilizes a Gibbs sampler to construct posterior moments. It is shown how this method can incorporate sign constraints and provide posterior probabilities for all possible subsets of regressors. The methods are illustrated using some standard data sets.
Working Paper
Aggregated vs. disaggregated data in regression analysis: implications for inference
This note demonstrates why regression coefficients and their statistical significance differ across degrees of data aggregation. Given the frequent use of aggregated data to explain individual behavior, data aggregation can result in misleading conclusions regarding the economic behavior of individuals.
Working Paper
Trend-reverting fluctuations in the life-cycle model
Aggregate time series provide evidence of short term dynamic adjustment that appears to be governed by complex or negative real eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models with complete markets. We study life cycle economies in which aggregate saving depends non-trivially on the distribution of wealth among cohorts. If consumption goods are weak gross substitutes near the steady state price vector, we prove that the unique equilibrium of a life cycle exchange economy converges to the unique non-monetary steady state ...
Working Paper
Superneutrality in postwar economies
A structural vector autoregression is employed to estimate the real output level response to permanent inflation shocks. We identify the model by assuming that in the long run, inflation is a monetary phenomenon. Well-known economic theory is used to establish this identification restriction. The model is estimated for a sample of 16 countries from the larger pool based on data quality, existence of long uninterrupted series on output and inflation, and evidence that the country experienced permanent shocks to inflation and output. The VAR is estimated for each country separately. We find ...