Identification with averaged data and implications for hedonic regression studies

In the estimation of models with averaged data, weighted least squares is often used and recommended as a way of improving the efficiency of the estimator. However, if the size of the different groups is not conditionally independent of the regressand, consistent estimation may not be possible at all. It is argued that in the case of some leading examples of averaged data regression, consistent estimation is possible using the usual weighted estimator.Endogenous sampling; Functional form; Weighted least squares.

Specification and Testing of Models Estimated by Quadrature

This paper proposes a test to check the specification of models with unobserved individual effects integrated out by quadrature and also a simple way of increasing the flexibility of this type of model. The results of a Monte Carlo study and an application using a well-known data set illustrate the finite sample properties of the proposed methods and their implementation in practice.

On the use of robust regression in econometrics

The use of robust regression estimators has gained popularity among applied econometricians. The main argument invoked to justify the use of the robust estimators is that they provide efficiency gains in the presence of outliers or non-normal errors. Unfortunately, most practitioners seem to be unaware of the fact that heteroskedastic and skewed errors can dramatically affect the properties of these estimators. In this paper we reconsider the interpretation of the specific robust estimator that has become popular in applied econometrics, and conclude that its use in this context cannot be generally recommended.

Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator

We extend the simulation results given in Santos Silva and Tenreyro (2006, �The log of gravity,� The Review of Economics and Statistics, 88, 641-658) by considering data generated as a finite mixture of gamma variates. Data generated in this way can naturally have a large proportion of zeros and is fully compatible with constant elasticity models such as the gravity equation. Our results confirm that the Poisson pseudo maximum likelihood estimator is generally well behaved.

Regression towards the mode

We propose a semi-parametric mode regression estimator for the case in which the variate of interest is continuous and observable over its entire un- bounded support. The estimator is semi-parametric in that the conditional mode is specified as a parametric function, but only mild assumptions are made about the nature of the conditional density of interest. We show that the proposed estimator is consistent and has a tractable asymptotic distribution. Simulation results and an empirical illustration are provided to highlight the practicality and usefulness of the estimator.

A cautionary note on tests for overidentifying restrictions

Tests of overidentifying restrictions are widely used in practice. However, there is often confusion about the nature of their null hypothesis and about the interpretation of their outcome. In this note we argue that these tests give little information on whether the instruments are correlated with the errors of the underlaying economic model and on whether they identify parameters of interest.

Hedonic Prices Indexes for New Passenger Cars in Portugal (1997- 2001)

This paper evaluates the effects of quality change on the price index for new passenger cars in Portugal for the years 1997-2001. Hedonic regression models are studied, giving particular emphasis to the relation between the form of the price index and the specification of the hedonic equation and estimation method used. It is argued that when log-linear hedonic functions are used the effects of quality change should be evaluated using a method akin to the Oaxaca decomposition (Oaxaca R., 1973, "Male-Female Wage Differentials in Urban Labor Markets", International Economic Review, 14, 693-709), rather than using the traditional dummy variables method. The results of the empirical part of the paper indicate that the CPI component corresponding to the sales of new passenger cars may have been overestimated by as much as 2.2 percentage points per year. This corresponds to an overestimation of the overall CPI by about 0.15 percentage points per year. As a by- product of this analysis it is also possible to conclude that the quality of new cars sold in Portugal increased on average 4.8 percent per year during this period.CPI bias; Heteroskedasticity; Oaxaca decomposition.

A note on measuring the importance of the uniform nonsynchronization hypothesis

In this note we reappraise the measure of the importance of time-dependent price setting rules suggested by Klenow and Kryvtsov (2005, "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Bank of Canada Working Paper 05-4). Furthermore, we propose an alternative way to gauge the significance of this type of price setting behavior, which can be interpreted as an upper bound for the proportion of price trajectories which are compatible with the uniform nonsynchronization hypothesis. The merits of the proposed measure are highlighted in an application using micro-data. Our results suggest that a large proportion of price trajectories may be compatible with simple time-dependent price setting mechanisms, but the strength of this evidence very much depends on the way that is used to evaluate the importance of this type of behavior.perfect synchronization.

The Log of Gravity at 15

We review the contribution of “The Log of Gravity” (Santos Silva and Tenreyro, Rev Econ Stat 88:641–658, 2006), summarize the main results in the ensuing literature, and provide a brief review of the state-of-the-art in the estimation of gravity equations and other constant-elasticity models