The estimation of simultaneous equation models under conditional heteroscedasticity

In this paper we extend the setting analysed in Hahn and Hausman (2002a) by allowing for conditionally heteroscedastic disturbances. We start by considering the type of conditional variance-covariance matrices proposed by Engle and Kroner (1995) and we show that, when we impose a GARCH specification in the structural model, some conditions are needed to have a GARCH process of the same order in the reduced form equations. Later, we propose a modified-2SLS and a modified-3SLS procedures where the conditional heteroscedasticity is taken into account, that are more asymptotically efficient than the traditional 2SLS and 3SLS estimators. We recommend to use these modified-2SLS and 3SLS procedures in practice instead of alternative estimators like LIML/FIML, where the non-existence of moments leads to extreme values (in case we are interested in the structural form). We show theoretically and with simulation that in some occasions 2SLS, 3SLS and our proposed 2SLS and 3SLS procedures can have very severe biases, and we present the bias correction mechanisms to apply in practiceSimultaneous equations, conditional heteroscedasticity

Simultaneous Equations and Weak Instruments under Conditionally Heteroscedastic Disturbances

In this paper we extend the setting analysed in Hahn and Hausman (2002a) by allowing for conditionally heteroscedastic disturbances. We start by considering the type of conditional variance-covariance matrices proposed by Engle and Kroner (1995) and we show that, when we impose a GARCH specification in the structural model, some conditions are needed to have a GARCH process of the same order in the reduced form equations. Later, we propose a modified-2SLS and a modified-3SLS procedures where the conditional heteroscedasticity is taken into account, that are more asymptotically efficient than the traditional 2SLS and 3SLS estimators. We recommend to use these modified-2SLS and 3SLS procedures in practice instead of alternative estimators like LIML/FIML, where the non-existence of moments leads to extreme values (in case we are interested in the structural form). We show theoretically and with simulation that in some occasions 2SLS, 3SLS and our proposed 2SLS and 3SLS procedures can have very severe biases, and we present the bias correction mechanisms to apply in practiceSimultaneous Equations, conditionally heteroscedastic disturbances

Growth and Convergence across the US: Evidence from County-Level Data

We use county data with 3,058 observations to study growth and convergence in the US. We assess the effect of 40 conditioning variables on the counties’ balanced growth paths. Using OLS and 3SLS-IV, the later yielding consistent estimates, we report estimates for the full sample and for metro, non-metro, and five regional samples. We find that (1) OLS yields convergence rates around 2 percent, but 3SLS yields 6–8 percent; (2) convergence rates vary across the U.S. E.g., Southern counties converge 2½ times faster than Northeastern counties; (3) government size at all levels (federal, state and local) is negatively correlated with growth; (4) the relation between educational attainment and growth is nonlinear; and (5) large finance, insurance and real estate industry, and entertainment industry is positively correlated with growth but the population share employed in education is negatively correlated with growth.Economic Growth, Convergence, Conditional Convergence, County- Level Data, 3SLS Instrumental Variables Estimate, Balanced Growth Path, Public Sector, Industry Composition, Educational Attainment

THE EFFECT OF MARKET CONCENTRATION ON LAMB MARKETING MARGINS

The national four-firm concentration ratio in the lamb slaughtering and processing industry increased from 55 percent in 1980 to 70 percent in 1992. The effect of increasing lamb packer concentration on lamb marketing margins is examined. A relative price spread (RPS) model for farm-to-wholesale and wholesale-to-retail marketing margins was estimated using three-stage least squares (3SLS). The 3SLS results indicate that increased lamb packer concentration has had relatively small, positive effects on lamb marketing margins.Lamb industry, Market concentration, Marketing margins, Livestock Production/Industries, Marketing,

Estimating Labor and Fiscal Impacts using Louisiana Community Impact Model: Comparing Panel Model and Three Stage Least Squares (3SLS)

Labor market, COMPAS model, Forecasting performance, 3sls, panel, Community/Rural/Urban Development, R1,

EMPIRICAL LIKELIHOOD ESTIMATORS OF THE LINEAR SIMULTANEOUS EQUATIONS MODEL

Information theoretic estimators are specified for a system of linear simultaneous equations, including maximum empirical likelihood, maximum empirical exponential likelihood, and maximum log Euclidean likelihood. Monte Carlo experiments are used to compare finite sample performance of these estimators to traditional generalized method of moments.Research Methods/ Statistical Methods,

SEMIPARAMETRIC BAYESIAN ANALYSIS OF SIMULTANEOUS SYSTEMS WITH AN APPLICATION TO JAPANESE MEAT DEMAND

This paper motivates and applies a variant of the Bayesian Bootstrap Multivariate Regression by Heckelei and Mittelhammer (2003) to a Japanese meat demand specification with endogenous regressors. The methodology is first given an alternative and more elegants motivation and then extended to incorporate microtheoretic restrictions and to apply in the context of a simultaneous equation models. The results of the application are compared to results based on an earlier approach used by Heckelei, Mittelhammer, and Wahl (1996).Demand and Price Analysis,

Bayesian Bootstrap Analysis of Systems of Equations

Research Methods/ Statistical Methods,

The spatial impact of local infrastructural investment in New Zealand

In this paper we estimate the impact of local authority infrastructure spending in New Zealand using spatial econometric modeling, with the infrastructure spending itself endogenously determined. Utilizing data from the New Zealand Census and Local Authorities Finance data (1991-2008), aggregated to functional labor market areas, we formulate a simultaneous equations growth model of real income, population, land rent and public infrastructure investment. Estimation is conducted using a spatial 3SLS procedure. We find that an increase in local infrastructure spending increases population growth, real income and land values, but is itself endogenous and spatially correlated

Exchange Rate Arrangements in Asia: Do They Matter?

We examine the difference that various exchange rate arrangements can make toward stabilizing effective nominal and real exchange rates, with special attention to the Asian experience. It concludes that formal basket pegging is unlikely to be sustainable but can easily mimicked with country-specific pegs. Some practical solutions are offered to stabilize regional exchange rates.International Economics, Exchange Rates, Policy coordination, Foreign exchange reserves