Abstract :
In a recent Econometric Theory problem, it was demonstrated that in a conditionally
heteroskedastic time series regression with martingale difference errors the
use of lagged values of regressors as instruments may not increase the efficiency
of estimation relative to ordinary least squares+ We provide an example of an analogous
phenomenon in a model with serially correlated errors, where the optimal
instrumental variables estimator is asymptotically as efficient as the instrumental
variables estimator constructed as optimal when ignoring the presence of conditional
heteroskedasticity+
