Tuesday, October 30, 2012

Some Properties of Non-linear Least Squares

You probably know that when we have a regression model that is non-linear in the parameters, the Non-Linear Least Squares (NLLS) estimator is generally biased, but it's weakly consistent. This is the case even if the model has non-random regressors and an additive error term that satisfies all of the usual assumptions.

In addition, even if the model’s errors are normally distributed, the NLLS estimator will have a sampling distribution that is non-normal in finite samples, and the usual t-statistics will not be Student-t distributed in finite samples.

In this post I'll illustrate these, and some other results, by using a simple Monte Carlo experiment.