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A Dynamic Conditionally Heteroscedastic Stochastic Frontier Model

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  • Löthgren, Mickael

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

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    Abstract

    This paper presents a new dynamic ARCH-related conditionally heteroscedastic stochastic frontier model specification where firm and time-specific technical inefficiency is represented by an autoregressive stochastic process in the error components. Monte Carlo results reveal that a one-sided likelihood ratio test of the proposed model has correct small-sample size and has high power for small to medium sized panels. An empirical application is included using a panel of 23 OECD countries over the 26 year period 1965-1990. The estimation results indicate a clear rejection of the standard frontier model and existence of first order dynamic conditionally heteroscedastic technical inefficiency.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 226.

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    Length: 19 pages
    Date of creation: 26 Feb 1998
    Date of revision:
    Handle: RePEc:hhs:hastef:0226

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    Related research

    Keywords: Conditional Heteroscedasticity; Panel Data; Stochastic Frontier Model; Technical Inefficiency;

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