Reasonable extreme bounds analysis

Abstract Leamer (1983) has given bounds for a parameter of a model estimated by ordinary least squares for all possible specifications with a given group of explanatory variables. However, some of these specifications will have low R2 specification and these can lead to wide bounds. In this paper, bounds are derived for all specifications with R2 values a given percentage of the maximum R2 value. These exact bounds can be found from calculating only two regressions. The techniques are applied to a study of the velocity of money.