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Estimating economic relationships subject to firm- and time-varying equality and inequality constraints

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Author Info
Christopher J. O'Donnell (School of Economics, University of New England NSW 2351, Australia)
Alicia N. Rambaldi (University of Queensland, Brisbane, QLD 4072, Australia)
Howard E. Doran (School of Economics, University of New England NSW 2351, Australia)

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Abstract

Applied econometricians often fail to impose economic regularity constraints in the exact form economic theory prescribes. We show how the Singular Value Decomposition (SVD) Theorem and Markov Chain Monte Carlo (MCMC) methods can be used to rigorously impose time- and firm-varying equality and inequality constraints. To illustrate the technique we estimate a system of translog input demand functions subject to all the constraints implied by economic theory, including observation-varying symmetry and concavity constraints. Results are presented in the form of characteristics of the estimated posterior distributions of functions of the parameters. Copyright © 2001 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 16 (2001)
Issue (Month): 6 ()
Pages: 709-726
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Handle: RePEc:jae:japmet:v:16:y:2001:i:6:p:709-726

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Griffiths, William E. & O'Donnell, Christopher J. & Cruz, Augustina Tan, 1999. "Imposing Regularity Conditions On A System Of Cost And Factor Share Equations," Working Papers 12925, University of New England, School of Economics. [Downloadable!]
  2. Selvanathan, E A, 1989. "A Note on the Stochastic Approach to Index Numbers," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(4), pages 471-74, October.
  3. Geweke, John, 1986. "Exact Inference in the Inequality Constrained Normal Linear Regression Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(2), pages 127-41, April. [Downloadable!] (restricted)
  4. Terrell, Dek, 1996. "Incorporating Monotonicity and Concavity Conditions in Flexible Functional Forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 179-94, March-Apr. [Downloadable!] (restricted)
  5. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-50, July.
  6. Bewley, R. A., 1983. "Tests of restrictions in large demand systems," European Economic Review, Elsevier, vol. 20(1-3), pages 257-269, January. [Downloadable!] (restricted)
  7. Soest, Arthur van & Kapteyn, Arie & Kooreman, Peter, 1993. "Coherency and regularity of demand systems with equality and inequality constraints," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 161-188. [Downloadable!] (restricted)
  8. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January. [Downloadable!] (restricted)
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  9. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(03), pages 409-431, August. [Downloadable!]
  10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June. [Downloadable!] (restricted)
  11. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
  12. Doran, Howard E. & Rambaldi, Alicia N., 1997. "Applying linear time-varying constraints to econometric models: With an application to demand systems," Journal of Econometrics, Elsevier, vol. 79(1), pages 83-95, July. [Downloadable!] (restricted)
  13. Coelli, T J, 1996. "Measurement of Total Factor Productivity Growth and Biases in Technological Change in Western Australian Agriculture," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 77-91, Jan.-Feb.. [Downloadable!] (restricted)
  14. Villezca-Becerra, Pedro A. & Shumway, C. Richard, 1992. "Multiple-Output Production Modeled With Three Functional Forms," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July. [Downloadable!]
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  1. Wolff, Hendrik & Heckelei, Thomas & Mittelhammer, Ron C., 2004. "Imposing Monotonicity And Curvature On Flexible Functional Forms," 2004 Annual meeting, August 1-4, Denver, CO 20256, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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