Small Sample Properties Of Existing And New Estimators Of The Autocorrelation Coefficient And Regression Coefficients In The Context Of Ar(1) Errors
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This study systematically and comprehensively investigates the small sample properties of the existing and some new estimators of the autocorrelation coefficient and of the regression coefficients in a linear regression model when errors follow an autoregressive process of order one. The new estimators of autocorrelation coefficient proposed here are based on the jackknife procedure. The jackknife procedure is applied in two alternative ways: first to the regression itself, and second to the residuals of the regression model. Next, the performance of the existing and new estimators of autocorrelation coefficient (thirty-three in total) is investigated in terms of bias and the root mean squared errors. Finally, we have systematically compared all of the estimators of the regression coefficients (again thirty-three) in terms of efficiency and their performance in hypothesis testing. We observe that the performance of the autocorrelation coefficient estimators is dependent upon the degree of autocorrelation and whether the autocorrelation is positive or negative. We do not observe a direct link between the bias and efficiency of an estimator. The performance of the estimators of the regression coefficients also depends upon the degree of autocorrelation. If the efficiency of regression estimator is of concern, then the iterative Prais-Winsten estimator should be used since it is most efficient for the widest range of independent variables and values of the autocorrelation coefficient. If testing of the hypothesis is of concern, then the estimators based on jackknife technique are certainly superior and are highly recommended. However, for negative values of the autocorrelation coefficient, the estimators based on Quenouille procedure and iterative Prais-Winsten estimator are comparable. But, for computational ease iterative Prais-Winsten estimator is recommended.
JEL ClassificationC13 and C22
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