The Estimation of Simultaneous Equation Models with Lagged Endogenous Variables and First Order Serially Correlated Errors
TL;DR: In this paper, various methods for the estimation of simultaneous equation models with lagged endogenous variables and first order serially correlated errors are discussed, and a suggestion on how to estimate the approximate covariance matrix of the estimators is made.
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.
Citations
More filters
TL;DR: The authors compared the performance of various structural and time series exchange rate models, and found that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollar/pound, dollar/mark, dollar /yen and trade-weighted dollar exchange rates.
3,621 citations
TL;DR: In this article, the authors examined the acquisition, depreciation and transfer of knowledge acquired through learning by doing in service organizations and found evidence of learning in these service organizations: as the organizations gain experience in production, the unit cost of production declines significantly.
Abstract: The paper examines the acquisition, depreciation and transfer of knowledge acquired through learning by doing in service organizations. The analysis is based on weekly data collected over a one and a half year period from 36 pizza stores located in Southwestern Pennsylvania. The 36 stores, which are franchised from the same corporation, are owned by 10 different franchisees. We find evidence of learning in these service organizations: as the organizations gain experience in production, the unit cost of production declines significantly. Knowledge acquired through learning by doing is found to depreciate rapidly in these organizations. Knowledge acquired through learning by doing is found to depreciate rapidly in these organizations. Knowledge is found to transfer across stores owned by the same franchisee but not across stores owned by different franchisees. Theoretical and practical implications of the work are discussed.
1,448 citations
TL;DR: In this article, the authors present an asset-market model of the housing market and estimate how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the stock of owner-occupied housing.
Abstract: Inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation. This paper presents an asset-market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock. Simulation results suggest that the accelerating inflation of the 1970s, which substantially reduced homeowners' user costs, could have accounted for as much as a 30 percent increase in real house prices. Persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner-occupied housing.
1,262 citations
TL;DR: In this paper, a new kind of macroeconomic determinant from the field of microstructure (order flow) is proposed to determine the price of the DM/$ spot market, and the model produces significantly better short-horizon forecasts than a random walk.
Abstract: Macroeconomic models of nominal exchange rates perform poorly. In sample, R2 statistics as high as 10 percent are rare. Out of sample, these models are typically out-forecast by a naive random walk. This paper presents a model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure—order flow. Order flow is the proximate determinant of price in all microstructure models. This is a radically different approach to exchange rate determination. It is also strikingly successful in accounting for realized rates. Our model of daily exchange-rate changes produces R2 statistics above 50 percent. Out of sample, our model produces significantly better short-horizon forecasts than a random walk. For the DM/$ spot market as a whole, we find that $1 billion of net dollar purchases increases the DM price of a dollar by about 1 pfennig.
942 citations
TL;DR: This article explored the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom and found that there is little evidence of a stable relationship between the two variables.
Abstract: In this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom. Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship between real interest rates and real exchange rates. We consider both in-sample and out-of-sample tests. One hypothesis that is consistent with our findings is that real disturbances (such as productivity shocks) may be a major source of exchange rate volatility. THIS PAPER INVESTIGATES THE empirical relationship between major currency real exchange rates and real interest rates over the modern (post-March 1973) flexible rate experience. The exchange rates examined here include the dollar/ mark, dollar/yen, and dollar/pound rates. Our two major findings are as follows. First, the data do not indicate a strong correspondence between real interest rate differentials (short-term or long-term) and real exchange rates. This finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination, though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature (i.e., changes in productivity, tastes, etc.). It is true that in many cases the sign of the estimated exchange rate-interest rate differential relationship is consistent with the possible predominance of financial market disturbances, but the relationship is not stable enough to be statistically significant. Second, although one does find some evidence of a unit root in both real exchange rates and long-term (but not shortterm) real interest differentials, these two series do not appear to be linearly cointegrated. Hence, the nonstationarity (or near nonstationarity) in the two series cannot be attributed to the same factor. In Section I, we briefly describe a class of small-scale monetary models of exchange rate determination. The importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move
862 citations
References
More filters
872 citations
Book•
01 Jan 1970
TL;DR: In this paper, the authors present a systematic presentation of statistical methods used for the analysis of economic data and the properties of various procedures are studied within the framework of theoretical stochastic models, and their relevance for inference on the economic phenomena is discussed at length.
Abstract: This now classic volume aims at a systematic presentation of the statistical methods used for the analysis of economic data. The properties of the various procedures are studied within the framework of theoretical stochastic models. Their relevance for inference on the economic phenomena is discussed at length. This third edition has been updated in many respects. Chapter 8 (Regression in Various Contexts) has been rewritten and now provides a full discussion of estimation in the linear models with a partially unknown covariance matrix, which introduces a systematic treatment of heteroscedasticity, random coefficients and composite errors. A new chapter has been added on simultaneous equation models that are non-linear with respect to the endogenous variables. The reader will also find new sections on shrunken estimators, on the choice of a model, on specification and estimation for distributed lag equations.
709 citations
512 citations