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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)

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.

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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    References listed on IDEAS

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    1. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
    2. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-488, September.
    3. U. Michael Bergman & Michael M. Hutchison & Yin-Wong Cheung, "undated". "Should the Nordic Countries Join A European Monetary Union? An Empirical Analysis," EPRU Working Paper Series 97-21, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    4. Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, July.
    5. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
    6. Agathe Cote, "undated". "Exchange Rate Volatility and Trade: A Survey," Staff Working Papers 94-5, Bank of Canada.
    7. Lundborg, Per, 1991. " Determinants of Migration in the Nordic Labor Market," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(3), pages 363-375.
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    More about this item

    Keywords

    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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