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Browsing by Author "Hayashi, Fumio"

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    Efficient Estimation of Time Series Models with Predetermined, but not Exogenous, Instruments
    (Center for Economic Research, Department of Economics, University of Minnesota, 1980-09) Sims, Christopher; Hayashi, Fumio
    Particularly in rational expectations models, it can occur that a model has serially correlated residuals, implies that those residuals are uncorrelated with contemporaneous and lagged values of a predetermined instrument, but does not imply that the instruments are strictly exogenous. This paper proposes a method for transforming such a model to one without serial correlation, while keeping the instrument predetermined. Standard theory of instrumental variables estimation then applies. If enough lagged values of the instrument are used, standard instrumental variables estimators applied to the transformed model approach the same bound on asymptotic efficiency which applies to another class of estimators for this problem which have been proposed by others.