[Gretl-devel] RFC: $sigma & co.

[Riccardo (Jack) Lucchetti]

On Thu, 1 May 2008, Sven Schreiber wrote:

> Am 01.05.2008 12:54, Riccardo (Jack) Lucchetti schrieb:
>
>> 
>> Moreover, we have a slight inconsistency in the way we compute things: 
>> $sigma uses the asymptotic formula (ie, E'E over T), while in the displayed 
>> equations we use degrees-of-freedom corrected figures for standard errors. 
>> I'm not overly bothered by this, but some may. 
>
> What about $sigma in other contexts, is that asymptotic or dof-corrected? I 
> think that should be made consistent.

I'm all for consistency in general, but this case is difficult. In OLS 
estimation, for example, SSR/T and SSR/(T-k) are both consistent, but the 
latter has the additional small advantage of being unbiased under certain 
conditions, so that's traditionally what people use. I personally 
think it's rather silly to worry about this when you have a decent 
sample size; if you don't, well, I doubt very much you should be doing 
inference _at all_.

In other contexts, Tobit models for example, you simply don't have a 
choice. In my view, the really important thing is that you know which 
formula is used in each case, so that if you feel like re-computing $sigma 
to your taste, you have the tools to do it.


Riccardo (Jack) Lucchetti
Dipartimento di Economia
Università Politecnica delle Marche

r.lucchetti at univpm.it
http://www.econ.univpm.it/lucchetti