The small sample performance of some limited information estimators of a dynamic structural equation with autocorrelated errors

This paper examines the small sample properties of the following seven estimators of a dynamic structural equation with autocorrelated errors: (1) 2SLS; (2) Fair's modification of Sargan's 2SLS; (3) the Dhrymes, Berner and Cummins (1974) variant of 2SLS; (4) a modified Theil's (1958) generalized 2SLS; (5) three two-step estimators proposed by Hatanaka (1976). Our principal results are that for low degrees of autocorrelation 2SLS performs well whereas for high degrees of autocorrelation the Theil and Dhrymes estimators are best with two of Hatanaka's estimators close behind. The Fair and the remaining Hatanaka estimator are always dominated by the others. This is of some practical interest because the Fair estimator is a standard option in some software packages.