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Econometric flexibility in microsimulation: an age-centred regression approach

  • John Sabelhaus

    ()

    (Department of Economics, University of Maryland, College Park, Maryland, 20742, and Investment Company Institute, 1401 H Street, NW, Washington, DC, 20005;)

  • Lina Walker

    (Public Policy Institute, AARP, Washington, DC.)

Registered author(s):

    This paper describes a strategy for estimating predictive equations that has been shown to work well in microsimulation modelling. The technique, referred to here as ?age-centred regression,? is particularly useful when the available data set for estimating a model equation is limited and the marginal effect of one or more explanatory variables might be expected to vary systematically by age. The examples used here to describe how age-centring works are taken from the labour supply equations in the Congressional Budget Office Long-Term (CBOLT) dynamic microsimulation model. By switching from a traditional single-equation approach to age-centred regression, we show that marginal effects of independent variables can vary significantly across age groups. The comparison also reveals that improvements in mean predictions by age can be achieved with little if any loss in statistical precision of coefficient estimates.

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    File URL: http://ima.natsem.canberra.edu.au/IJM/V2_2/IJM_2_2_1.pdf
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    Article provided by International Microsimulation Association in its journal International Journal of Microsimulation.

    Volume (Year): 2 (2009)
    Issue (Month): 2 ()
    Pages: 1-14

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    Handle: RePEc:ijm:journl:v:2:y:2009:i:2:p:1-14
    Contact details of provider: Web page: http://www.microsimulation.org/ijm/

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    1. van Soest, Arthur & Das, Marcel & Gong, Xiaodong, 2002. "A structural labour supply model with flexible preferences," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 345-374, March.
    2. Harris, Amy Rehder & Simpson, Michael, 2005. "Winners and Losers under Various Approaches to Slowing Social Security Benefit Growth," National Tax Journal, National Tax Association, vol. 58(3), pages 523-43, September.
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