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A Bayesian Latent Variable Mixture Model for Filtering Firm Profit Rate

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Abstract

By using Bayesian Markov chain Monte Carlo methods we select the proper subset of competitive firms and find striking evidence for Laplace shaped firm profit rate distributions. Our approach enables us to extract more information from data than previous research. We filter US firm-level data into signal and noise distributions by Gibbs-sampling from a latent variable mixture distribution, extracting a sharply peaked, negatively skewed Laplace-type profit rate distribution. A Bayesian change point analysis yields the subset of large firms with symmetric and stationary Laplace distributed profit rates, adding to the evidence for statistical equilibrium at the economy wide and sectoral levels.

Suggested Citation

  • Gregor Semieniuk & Ellis Scharfenaker, 2014. "A Bayesian Latent Variable Mixture Model for Filtering Firm Profit Rate," SCEPA working paper series. 2014-1, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:2014-1
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    Cited by:

    1. Williams, Michael A. & Baek, Grace & Park, Leslie Y. & Zhao, Wei, 2016. "Global evidence on the distribution of economic profit rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 458(C), pages 356-363.
    2. Ellis Scharfenaker & Gregor Semieniuk, 2017. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 465-499, July.

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    More about this item

    Keywords

    Firm competition; Laplace distribution; Gibbs sampler; Profit rate; Statistical equilibrium;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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