Saturday, October 11, 2014

Illustrating Asymptotic Behaviour - Part I

Learning the basics about the (large sample) asymptotic behaviour of estimators and test statistics is always a challenge. Teaching this material can be challenging too!

So, in this post and in two more to follow, I'm going to talk about a small Monte Carlo experiment that illustrates some aspects of the asymptotic behaviour of the OLS estimator. I'll focus on three things:
  1. The consistency of the OLS estimator in a situation where it's known to be biased in small samples.
  2. The correct way to think about the asymptotic distribution of the OLS estimator.
  3. A comparison of the OLS estimator and another estimator, in terms of asymptotic efficiency.