Skip to main content
padlock icon - secure page this page is secure

Bias correction through filtering omitted variables and instruments

Buy Article:

$61.00 + tax (Refund Policy)

This paper proposes a combination of the particle-filter-based method and the expectation-maximization algorithm (PFEM), in order to filter unobservable variables and hence, to reduce the omitted variables bias. Furthermore, I consider as an unobservable variable, an exogenous one that can be used as an instrument in the instrumental variable (IV) methodology. The aim is to show that the PFEM is able to eliminate or reduce both the omitted variable bias and the simultaneous equation bias by filtering the omitted variable and the unobserved instrument, respectively. In other words, the procedure provides (at least approximately) consistent estimates, without using additional information embedded in the omitted variable or in the instruments, since they are filtered by the observable variables. The validity of the procedure is shown both through simulations and through a comparison to an IV analysis which appeared in an important previous publication. As regards the latter point, I demonstrate that the procedure developed in this article yields similar results to those of the original IV analysis.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Keywords: C18; C36; E21; omitted variables bias; particle filter; simultaneous equations bias

Document Type: Research Article

Affiliations: Department of Economics, University of Münster, Münster, Germany

Publication date: March 11, 2016

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
X
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more