Showing papers in "Econometrica in 1970"

Efficient Inference in a Random Coefficient Regression Model

Abstract: Computes a GLS matrix weighted estimator for a panel data set. meangroup.src does a similar estimator, but uses simple weighted average rather than a matrix-weighted average. Swamy(1970), "Efficient Inference in a Random Coefficient Regression Model", Econometrica, vol 38, 311-323. (This abstract was borrowed from another version of this item.)

Testing for Serial Correlation in Least-Squares Regression When Some of the Regressors are Lagged Dependent Variables

Abstract: The construction of tests of model specification is considered from a general point of view. The results are applied to testing the serial independence of the disturbances in a regression model where some of the regressors are lagged dependent variables. It is shown that the asymptotic distribution of the lag-1 serial correlation coefficient calculated from the least-squares residuals differs from that of the coefficient calculated from the true disturbances. A consequence of this is that tests of serial independence based on the residuals from regression on fixed regressors are invalid when applied to models containing lagged dependent variables even when the null hypothesis of serial independence is true. Tests which are asymptotically valid for the large-sample case are suggested.

The Estimation of Simultaneous Equation Models with Lagged Endogenous Variables and First Order Serially Correlated Errors

Abstract: In this paper various methods for the estimation of simultaneous equation models with lagged endogenous variables and first order serially correlated errors are discussed. The methods differ in the number of instrumental variables used. The asymptotic and small sample properties of the various methods are compared, and the variables which must be included as instruments to insure consistent estimates are derived. A suggestion on how to estimate the approximate covariance matrix of the estimators is made.

Lindahl's solution and the core of an economy with public goods

Abstract: In an economy with an arbitrary number of consumers and an arbitrary number of commodities, some public and some private, I propose a generalization of Lindahl's equilibrium solution, and prove an existence theorem for it. A particular generalization of the "core" of an exchange equilibrium to an economy with public goods is proposed, and it is shown that a Lindahl equilibrium allocation is also a core allocation.

Optimal investment and consumption strategies under risk for a class of utility functions

Abstract: This paper develops a sequential model of the individual's economic decision problem under risk. On the basis of this model, optimal consumption, investment, and borrowing-lending strategies are obtained in closed form for a class of utility functions. For a subset of this class the optimal consumption strategy satisfies the permanent income hypothesis precisely. The optimal investment strategies have the property that the optimal mix of risky investments is independent of wealth, noncapital income, age, and impatience to consume. Necessary and sufficient conditions for long-run capital growth are also given.

Estimating cost function parameters without using cost data: illustrated methodology

Abstract: FOR VARIOUS REASONS, data availability being not the least of these, empirical studies of production processes can often be carried out more conveniently in terms of cost functions instead of production functions. Assuming cost minimizing behavior by entrepreneurs, cost function studies can, in principle, reveal the same information [23, 26]. Such dual cost functions have an empirical difficulty in common with production functions, however. They must be concave and linear homogeneous in input prices so that, when limitations of known estimation techniques are considered, the choice of appropriate algebraic structure is severely restricted. Even when only economies of scale information is desired, the preferred time-series studies [27, p. 39ff] are placed under this handicap since construction of a proper index to deflate price variation is equivalent to specification and parameter estimation of a production function [16]. For this reason, attention is directed to the sometimes criticized cross-section studies where input price variation may be negligible.

Utility functions for partially ordered topological spaces.

Abstract: : Sufficient conditions are given for the existence of continuous numerical representations (utilities) for partially ordered topological spaces. (Author)

Analysis of distributed lag models with applications to consumption function estimation

Abstract: SINCE KOYCK'S pioneering work, distributed lag models have come to play an important role in econometrics and much work has been done to develop methods for analyzing them-see eg Koyck [15], Klein [12], Solow [20], Fuller and Martin [5], Malinvaud [18], Hannan [9], Liviatan [17], Amemiya and Fuller [1], Zellner and Park [25], Thornber [21], Waud [23], Dhrymes [3], and Griliches [7] In the present paper we present maximum likelihood and Bayesian estimation procedures for estimating the parameters of a typical distributed lag model under four alternative sets of assumptions regarding disturbance terms' properties Then these procedures and assumptions are employed in analyses of a sample of United States quarterly consumption data to illustrate their application and to show the sensitivity of inferences to the assumptions made about disturbance terms' properties We also compute posterior probabilities associated with four alternative models The plan of the paper is as follows In Section 2, the model to be analyzed is described and alternative assumptions about disturbance terms are introduced Section 3 contains a discussion of maximum likelihood techniques and application of them in the analysis of US quarterly consumption data Then in Sections 4 and

The Probability of a Cyclical Majority

Abstract: Consider a committee or society attempting to order the alternatives (X_1, X_2, X_3) by use of majority rule. Each individual is assumed to have a strong ordering (called a profile) on the alternatives. "Indifference" is not a property of the profiles. The committee is said to "prefer" X_i to X_j, denoted X_iCX_j if X_i is preferred to X_j on a majority of the individual profiles. It is well known that if certain individual profiles are chosen, the resulting "social ordering" may be cyclical, i.e., X_iCX_j, X_jCX_k, X_kCX_i. Such a result is called a "cycle."

Some adjustment problems

Abstract: This paper first takes a rather pessimistic look at what has been accomplished in recent years in understanding the "price mechanism." It then takes up two points in some detail. First, it is shown that stationary expectations do not ensure the convergence of all equilibrium paths on to a steady state in a neoclassical model with heterogeneous capital goods (an appendix works an example). Secondly, a tatonnement process is outlined and discussed for an economy with constant returns to scale. I AM CONCERNED on this occasion with the performance of the "invisible hand" in a number of abstract economies which have been discussed in recent years. My findings are rather pessimistic in the sense that I see no support for the view that any of the traditional methods of response of various agents to changes in their economic environment makes the "hand" perform as it is often taken to perform. One cannot exclude the possibility that the world behaves a good deal better than the models-but it is the models that lead people to view the economic system as they do. It certainly is hard to find a justification for the great preoccupation of both research and teaching with equilibrium economics unless one is also prepared to believe in, at least, a Marshallian tendency to equilibrium. Of course one of the reasons why so much of our effort is devoted to the study of equilibria is that they are singularly well suited to study. We all know the endless variety of adjustment models, not uncongenial to commonsense, one is capable of constrUcting. No unifying principle, such as maximization, seems available; no elegant separation theorems reduce the mass of ugly differential or difference equations to the splendid order of a chapter in Debreu. To discuss and analyze how the economy works it may be necessary to go and look. The achievements of economic theory in the last two decades are both impressive and in many ways beautiful. But it cannot be denied that there is something scandalous in the spectacle of so many people refining the analyses of economic states which they give no reason to suppose will ever, or have ever, come about. It probably is also dangerous. Equilibrium economics, because of its well known welfare economics implication, is easily convertible into an apologia for existing

Price distortion and economic welfare

Abstract: We study a standard n-commodity model in which equilibrium positions are characterized by specified inequalities between society's marginal rates of transformation in production and a single consumer's marginal rates of substitution in consumption; these inequalities are exemplified by, but not limited to, excise taxes and subsidies. We explore circumstances under which certain increases in these "taxes" and "subsidies" can be said to decrease welfare. In order to do so, we look for conditions under which the equilibrium consumption vector is well defined by a specification of the taxes and subsidies, and find that the conditions required are stringent. Among our conclusions is the proposition that the validity of consumers' surplus measures for analyzing such problems may depend on assumptions that are more strict than their users have realized.

Another type of risk aversion

Abstract: : A formulation is made incorporating the concept of 'size-of-risk' aversion into the process of selecting a utility function. This concept extends and complements normative observation of risk aversion, namely, that as wealth increases, many decisionmakers would feel that they ought to pay less insurance against a given risk. However, as the size of potential loss increases, decisionmakers are more averse to risk and would be willing to pay a larger premium. They display what is known as (positive) size-of-risk aversion. In selecting a utility function, both concepts should be considered.

An alternative to the bounds test for testing for serial correlation in least-squares regression

Abstract: This article shows how to transform residuals from regression on an arbitrary set of k regressors to a set of values having the same joint distribution as the residuals from regression on a different set L of k regressors. Let d′ denote the value of the statistic $\Sigma (z_{t}-z_{t-1})^{2}/\Sigma z_{t}^{2}$ calculated from these values. It is shown that for a suitable choice of L the distribution of d′ is the same as that of $d_{U}$ , the significance values of which are tabulated in [1].

Iterative multilevel planning with production targets

Abstract: Drawing up a medium term economic plan usually involves a complicated interaction between the planning ministry and representatives of the various industries, firms, or departments. Each economic agent works in his own environment with at best incomplete information about the other agents. Yet somehow the economic system as a whole is typically able to move toward an operational plan which is satisfactory even when judged by the criterion of complete information. This paper examines the properties of one particular theoretical model of economic planning in which the center transmits information via a system of quotas.

The Predictive Performance of Econometric Models of Quarterly Investment Behavior

Abstract: In this paper four alternative quarterly econometric models of investment behavior are compared with regard to predictive performance. Predictive performance may be assessed in two ways: (i) We compare prediction errors for a period of prediction with errors for a period of fit. (ii) We fit investment functions for both periods and test for structural change. These two procedures may be viewed as alternative tests of the hypothesis of structural change; the second is more powerful from the statistical point of view. Tests of predictive performance supplement the comparisons of alternative models given in our preceding paper [17]. Goodness of fit may be exaggerated by consideration of a wide range of alternatives and selection of the one that fits best. If goodness of fit is exaggerated, a predictive test should produce evidence of structural change between the period of fit and the period of prediction. Of course, the better an econometric model fits the data, the more stringent this criterion for predictive performance. The econometric models included in our study are those of Anderson [1], Eisner [7], Jorgenson and Stephenson [19], and Meyer and Glauber [21]. On the basis of predictive performance the ranking of the alternative models is as follows: (1) Eisner, (2) JorgensonStephenson, (3) Meyer-Glauber, and (4) Anderson. This ranking is similar to that resulting from comparisons based on goodness of fit presented in our preceding paper [17]. For econometric models of quarterly investment behavior, the models that fit the best also have the best predictive performance.