Econometrica: Jul 1977, Volume 45, Issue 5
Application of Pre-Test and Stein Estimators to Economic Data
Dennis J. Aigner, George G. JudgeA limiting feature of several theoretically superior "shrinkage" estimators for the linear regression model lies in the fact that there must be a certain degree of orthogonality in regressors in order for them to dominate the ordinary least squares estimator. In this paper we apply variants of pre-test and Stein estimators to data on international trade, and discuss their merits in light of the limitations imposed by the non-orthogonality of these and other sets of economic data.
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