Estimation and inference in unstable nonlinear least squares models

In this paper, we extend Bai and Perron's (1998, Econometrica, pp. 47-78) method for detecting multiple breaks to nonlinear models. To that end, we consider a nonlinear model that can be estimated via nonlinear least squares (NLS) and features a limited number of parameter shifts occurring at unknown dates. In our framework, the break-dates are estimated simultaneously with the parameters via minimization of the residual sum of squares. Using new uniform convergence results for partial sums, we derive the asymptotic distributions of both break-point and parameter estimates and propose several instability tests. We provide simulations that indicate good finite sample properties of our procedure. Additionally, we use our methods to test for misspecification of smooth-transition models in the context of an asymmetric US federal funds rate reaction function and conclude that there is strong evidence of sudden change as well as smooth behavior.Multiple Change Points, Nonlinear Least Squares, Smooth Transition

EU policy reform simulation based on panel data estimation of on- and off-farm labour supply equations for Dutch dairy farmers

This research focuses on the estimation of labour supply equations for Dutch dairy farmers that are suitable for policy simulations. Data availability leads to the fact that we can not estimate structural labour supply equations. We show how to derive reduced form equations suitable for policy simulations. In this research we use the panel data sample selection estimation approach of Kyriazidou (1997) and Wooldridge (1995) to estimate the off-farm labour supply equation. The two lead to different estimation results and different simulation results based on these.Econometrics, Panel Data, Sample Selection, Labour Supply, CAP Reform, Labor and Human Capital, C23, C24, C51, C53, D13, J22, Q12, Q18,

On- and Off-Farm Labour Supply of Dutch Dairy Farmers: Estimation and Policy Simulations

This research focuses on the effect of decoupled payments on labour supply of Dutch dairy farmers. Data availability leads to the fact that we can not estimate structural labour supply equations. We show how to derive reduced form equations suitable for policy simulations. We use the panel data sample selection estimation approach Wooldridge (1995) to estimate the off-farm labour supply equation. This method is based on Mundlak's (1978) linear panel data estimation approach, which we use to estimate the on-farm labour supply equations. Even though, simulations show a significant negative effect of decoupled payments on labour supply, the economic significance of this effect is very limited.decoupled payments, labour supply, panel data, sample selection, policy simulation, Labor and Human Capital, Livestock Production/Industries, C23, C24, C51, C53, D13, J22, Q12, Q18,

Inference regarding multiple structural changes in linear models estimated via two stage least squares

In this paper, we extend Bai and Perron’s (1998, Econometrica, p.47-78) framework for multiple break testing to linear models estimated via Two Stage Least Squares (2SLS). Within our framework, the break points are estimated simultaneously with the regression parameters via minimization of the residual sum of squares on the second step of the 2SLS estimation. We establish the consistency of the resulting estimated break point fractions. We show that various F-statistics for structural instability based on the 2SLS estimator have the same limiting distribution as the analogous statistics for OLS considered by Bai and Perron (1998). This allows us to extend Bai and Perron’s (1998) sequential procedure for selecting the number of break points to the 2SLS setting. Our methods also allow for structural instability in the reduced form that has been identified a priori using data-based methods. As an empirical illustration, our methods are used to assess the stability of the New Keynesian Phillips curve.unknown break points; structural change; instrumental variables; endogenous regressors; structural stability tests; new Keynesian Phillips curve

Asymptotic Distribution Theory for Break Point Estimators in Models Estimated via 2SLS

In this paper, we present a limiting distribution theory for the break point estimator in a linear regression model estimated via Two Stage Least Squares under two different scenarios regarding the magnitude of the parameter change between regimes. First, we consider the case where the parameter change is of fixed magnitude; in this case the resulting distribution depends on distribution of the data and is not of much practical use for inference. Second, we consider the case where the magnitude of the parameter change shrinks with the sample size; in this case, the resulting distribution can be used to construct approximate large sample confidence intervals for the break point. The finite sample performance of these intervals are analyzed in a small simulation study and the intervals are illustrated via an application to the New Keynesian Phillips curve.

ON THE ROLE OF THE BROKERAGE INSTITUTION IN THE DEVELOPMENT OF ETHIOPIAN AGRICULTURAL MARKETS

The recognition that policies aimed at “getting prices right” in less developed countries were failing due to incomplete markets has spurred a new wave of reforms, directed instead at “getting markets and institutions right”. Although previous studies have documented the potentially crucial role of the brokerage institution in crop commercialisation, few have investigated what determines wholesalers’ decisions to use brokers. Using data collected in 2006/07 by Gabre-Madhin, IFPRI and EDRI, we examine Ethiopian traders’ decisions regarding whether or not they should use brokers, and how much. Independent variables are human, financial and social asset availability, implemented trading practices, access to infrastructure and institutions, location, travelled distance and traded crops. Results show that brokerage services are particularly valuable for wholesalers lacking social capital and storage capacity, who are based in areas with low population density, and who trade at a distance especially when roads are not asphalted. Buyers in drought-prone domains rely on brokers more for their long-distance purchases, while sellers in moisture-reliable domains employ brokers more for their long-distance sales. These results provide useful indications regarding where and how the recent formalisation of brokerage functions through the ECX could be most beneficial for the functioning of Ethiopian agricultural markets.Agribusiness, O12, O13, O18,

Estimation and inference in unstable nonlinear least squares models

In this paper, we extend Bai and Perron's (1998, Econometrica, pp. 47-78) method for detecting multiple breaks to nonlinear models. To that end, we consider a nonlinear model that can be estimated via nonlinear least squares (NLS) and features a limited number of parameter shifts occurring at unknown dates. In our framework, the break-dates are estimated simultaneously with the parameters via minimization of the residual sum of squares. Using new uniform convergence results for partial sums, we derive the asymptotic distributions of both break-point and parameter estimates and propose several instability tests. We provide simulations that indicate good finite sample properties of our procedure. Additionally, we use our methods to test for misspecification of smooth-transition models in the context of an asymmetric US federal funds rate reaction function and conclude that there is strong evidence of sudden change as well as smooth behavior

Estimation and inference in unstable nonlinear least squares models

In this paper, we extend Bai and Perron's (1998, Econometrica, pp. 47-78) method for detecting multiple breaks to nonlinear models. To that end, we consider a nonlinear model that can be estimated via nonlinear least squares (NLS) and features a limited number of parameter shifts occurring at unknown dates. In our framework, the break-dates are estimated simultaneously with the parameters via minimization of the residual sum of squares. Using new uniform convergence results for partial sums, we derive the asymptotic distributions of both break-point and parameter estimates and propose several instability tests. We provide simulations that indicate good finite sample properties of our procedure. Additionally, we use our methods to test for misspecification of smooth-transition models in the context of an asymmetric US federal funds rate reaction function and conclude that there is strong evidence of sudden change as well as smooth behavior