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Simultaneous Equations Bias in Disaggregated Econometric Models

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  • Kennan, John

Abstract

In the theory of competitive markets, agents act as if they do not affect prices. By analogy with the language of econometrics, agents may be said to take prices as "exogenously given," which suggests that prices are econometrically exogenous in individual behavioral equations. This involves semantic confusion between different meanings of the word "exogenous." Simultaneity problems cannot be dispelled by working with disaggregated data. In particular, nothing is gained by disaggregating the dependent variable in a regression equation if the "micro" and the "macro" equations use the same regressors. However, there may be substantial gains from disaggregation of the regressors. Copyright 1989 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 1 (January)
Pages: 151-56

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Handle: RePEc:bla:restud:v:56:y:1989:i:1:p:151-56

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Cited by:
  1. Aprajit Mahajan, 2009. "Estimating Price Elasticities with Non-Linear Errors in Variables," Discussion Papers 08-045, Stanford Institute for Economic Policy Research.
  2. Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
  3. James B. Davies & Susanna Sandstrom & Anthony Shorrocks & Edward N. Wolff, 2009. "The Level and Distribution of Global Household Wealth," University of Western Ontario, Economic Policy Research Institute Working Papers 20091, University of Western Ontario, Economic Policy Research Institute.
  4. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
  5. David Atkin, 2013. "Trade, Tastes, and Nutrition in India," American Economic Review, American Economic Association, vol. 103(5), pages 1629-63, August.
  6. Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-89, July.

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