New estimator simplifies linear regression models, providing accurate economic predictions.
The article presents a new method for estimating linear regression models using a simple weighted least-squares approach. This method, called the integrated instrumental variables (IIV) estimator, does not require complex parameter choices or instrument selection. Monte Carlo simulations show that the IIV estimator is reliable in small samples. When applied to UK data, the IIV estimator accurately estimates the elasticity of intertemporal substitution, unlike traditional methods.