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A Dynamic Conditionally Heteroscedastic Stochastic Frontier Model


  • Löthgren, Mickael

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


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.

Suggested Citation

  • Löthgren, Mickael, 1998. "A Dynamic Conditionally Heteroscedastic Stochastic Frontier Model," SSE/EFI Working Paper Series in Economics and Finance 226, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0226

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    More about this item


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

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity


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