Omitted variables, confidence intervals, and the productivity of exchange rates

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Abstract

A new analytical technique, named 'Bi-Directional Reiterative Truncated Projected Least Squares' (BD-RTPLS), produces reduced form estimations and less than half the error of OLS when there are omitted variables that interact with included variables. This paper develops confidence intervals for BD-RTPLS and uses BD-RTPLS to estimate the relationship between the exchange rate (e) and gross domestic product (GDP) using annual data from 1984 to 2000 for 23 developing Asian and Pacific countries. BD-RTPLS produces estimates for the exchange rate multiplier (dGDP/de) for these countries and shows how omitted variables affected these multipliers across countries and over time.

Original languageEnglish (US)
Pages (from-to)15-45
Number of pages31
JournalPacific Economic Review
Volume12
Issue number1
DOIs
Publication statusPublished - Feb 1 2007

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ASJC Scopus subject areas

  • Economics and Econometrics

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