👉 Shrinkage, also known as shrinkage or residual variance, is a statistical technique used in econometrics and other fields to reduce the volatility of estimated parameters. It involves estimating the parameters of an estimator (e.g., regression model) by minimizing the sum of squared residuals (SSR). The aim is to reduce the amount of bias introduced by the sample data.
In econometrics, shrinkage techniques are often used in linear models and include methods such as:
1.
Least Squares Est
shrinkage