Direct prediction error identification of systems operating in closed loop may lead to biased results due to the correlation between the input and the output noise, The authors study this error. what factors affect it, and how it may be avoided. Zn particular, the role of the noise model is discussed and the authors show how the noise model should be parameterized to avoid the bias. Apart from giving important insights into the properties of the direct method, this provides a nonstandard motivation for the indirect method.