When are Supply and Demand Determined Recursively Rather than Simultaneously? Another look at the Fulton Fish Market Data
AbstractWhen a supply and demand model is recursive, with errors uncorrelated across the two equations, ordinary least squares (OLS) is the recommended estimation procedure. Supply to a daily fish market is determined by the previous night’s catch, so this would appear to be a good example of a recursive market. Despite this, data from the Fulton fish market are treated in the literature, without explanation, as coming from a simultaneous-equations market. We provide the missing explanation: inventory changes, influenced by current price, affect daily supply. Instrumental variable estimates using the full data set differ very little from OLS estimates using only observations with little inventory change, providing strong support for our explanation. Finally, we note that because of inventory changes, estimates of supply price elasticities in high-frequency markets must be interpreted with care.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6053.
Date of creation: Jan 2007
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Other versions of this item:
- Kathryn Graddy & Peter E. Kennedy, 2006. "When are Supply and Demand Determined Recursively Rather than Simultaneously? Another look at the Fulton Fish Market Data," Economics Series Working Papers 297, University of Oxford, Department of Economics.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- L6 - Industrial Organization - - Industry Studies: Manufacturing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-28 (All new papers)
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