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Inferential methods for elasticity estimates

Author

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  • Hirschberg, J.G.
  • Lye, J.N.
  • Slottje, D.J.

Abstract

Elasticities are often estimated from the results of demand analysis. However, drawing inferences from them may involve assumptions that could influence the outcome. In this paper we investigate one of the most common forms of elasticity which is defined as a ratio of estimated relationships and demonstrate how the Fieller method for the construction of confidence intervals can be used to draw inferences. We estimate the elasticities of expenditure from Engel curves using a variety of estimation models. Parametric Engel curves are modelled using OLS, MM robust regression, and Tobit. Semiparametric Engel curves are estimated using a penalized spline regression. We demonstrate the construction of confidence intervals of the expenditure elasticities for a series of expenditure levels as well as the estimated cumulative density function for the elasticity evaluated for a particular household.

Suggested Citation

  • Hirschberg, J.G. & Lye, J.N. & Slottje, D.J., 2008. "Inferential methods for elasticity estimates," Journal of Econometrics, Elsevier, vol. 147(2), pages 299-315, December.
  • Handle: RePEc:eee:econom:v:147:y:2008:i:2:p:299-315
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    References listed on IDEAS

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    Cited by:

    1. Christian Murray & Juan Urquiza, 2017. "Do Estimated Taylor Rules Suffer from Weak Identification?," Working Papers 2017-274-09, Department of Economics, University of Houston.
    2. repec:eee:econom:v:199:y:2017:i:2:p:173-183 is not listed on IDEAS
    3. J. N. Lye and J. G. Hirschberg, 2012. "Inverse Test Confidence Intervals for Turning points: A," Department of Economics - Working Papers Series 1160, The University of Melbourne.
    4. Joe Hirschberg & Jenny Lye, 2017. "Alternative Graphical Representations of the Confidence Intervals for the Structural Coefficient from Exactly Identified Two-Stage Least Squares," Department of Economics - Working Papers Series 2026, The University of Melbourne.
    5. Hirschberg, J.G. & Lye, J.N., 2010. "Two geometric representations of confidence intervals for ratios of linear combinations of regression parameters: An application to the NAIRU," Economics Letters, Elsevier, vol. 108(1), pages 73-76, July.

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