Monte Carlo Simulation IV/OLS estimator
Posted: Sat Dec 17, 2011 5:12 am
Hi all,
I made a Monte Carlo Simulation to compare the properties of OLS and IV in a finite sample (n=200).
I have a question to one result I got.
Simple 1 Regressor case
Y_i=X_i * beta + e_i
When choosing the correlation of X and e to be 0.7, the variance of the OLS estimator has decreased compared to the case where there is no correlation.
How can this be explained ?
Bye Bye
greetz.
I made a Monte Carlo Simulation to compare the properties of OLS and IV in a finite sample (n=200).
I have a question to one result I got.
Simple 1 Regressor case
Y_i=X_i * beta + e_i
When choosing the correlation of X and e to be 0.7, the variance of the OLS estimator has decreased compared to the case where there is no correlation.
How can this be explained ?
Bye Bye
greetz.