A Note on Bias in First-Differenced AR(1) Models

In this note, we derive the finite sample bias of the modified ordinary least squares (MOLS) estimator, which was suggested by Wansbeek and Knaap (1999) and reconsidered by Hayakawa (2006a,b). From the formula for the finite sample bias, we find that the bias of the MOLS estimator becomes small as $\rho$, the autoregressive parameter, approaches unity. Simulation results indicate that the MOLS estimator has very small bias and that its empirical size is close to the nominal one.