Confidence Intervals for Estimates of Elasticities

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Confidence Intervals for Estimates of Elasticities

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

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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.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1053.

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Length: 42 pages
Date of creation: 2008
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Handle: RePEc:mlb:wpaper:1053

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-11-25 (All new papers)
NEP-ECM-2008-11-25 (Econometrics)

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