Evaluation of Two Stage Modified Ridge Estimator and Its Performance

Year 2018, Volume: 22 Issue: 6, 1631 - 1637, 01.12.2018

Selma Toker , Nimet Özbay

https://doi.org/10.16984/saufenbilder.377423

Cited By: 2

Abstract

Biased
estimation methods are more desirable than two stage least squares estimation
for simultaneous equations models suffering from the problem of
multicollinearity. This problem is also handled by using some prior information.
Taking account of this knowledge, we recommend two stage modified ridge
estimator. The new estimator can also be evaluated as an alternative to the
previously proposed two stage ridge estimator. The widespread performance
criterion, mean square error, is  taken
into consideration to compare the two stage modified ridge, two stage ridge and
two stage least squares estimators. A real life data analysis is investigated
to prove the theoretical results in practice. In addition, the
intervals of the biasing parameter which provide the superiority of the two
stage modified ridge estimator are determined 
 with the help of figures. The
researchers who deal with simultaneous systems with multicollinearity can opt for
the two stage modified ridge estimator.

Keywords

Modified ridge estimator, Multicollinearity, Simultaneous equations model, Two stage least squares

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