The iterative stein rule estimator of the disturbance variance in a linear regression model when the proxy variables are used

In case of the existence of the unobservable relevant regressors, a way of estimating the model is to use the proxy variables as regressors. Here we consider the estimator of the disturbance variance in a linear regression model with the proxy variables when the Stein-rule(SR) estimator of this model is used in place of the ordinary least square estimator (OLSE). Our aim is to examine the effect of the proxy variables on disturbance variance in a regression models with proxy variables. For this purpose we define the iterative SRP (SR in a linear regression model with the proxy variables) and iterative PSRP (Positive part SR in a linear regression model with the proxy variables) estimators of the disturbance variance in a regression model with proxy variable and analyze them by using MSE (Mean square error) criterion.