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The Reliability of ML Estimators of Systems of Demand Equations: Evidence from OECD Countries

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  • Selvanathan, Saroja

Abstract

In large demand systems, when the unknown error covariance matrix is approximated by its usual maximum likelihood estimator, the coefficient estimates are known to suffer from two problems: (1) the asymptotic standard errors severely understate the sampling variability of the estimates and (2) the efficiency of the maximum likelihood coefficient estimates is greatly impaired. In this paper, the author proposes an alternative estimator for the covariance matrix and evaluates its performance. Using time-series data for OECD countries, the author finds that there is a spectacular improvement. Copyright 1991 by MIT Press.

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  • Selvanathan, Saroja, 1991. "The Reliability of ML Estimators of Systems of Demand Equations: Evidence from OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 346-353, May.
    • Handle: RePEc:tpr:restat:v:73:y:1991:i:2:p:346-53
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    Cited by:

    1. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
    2. Clements, Kenneth W. & Vo, Long Hai & Mariano, Marc Jim, 2021. "Modelling import penetration," Economic Modelling, Elsevier, vol. 102(C).
    3. Maureen T. Rimmer & Alan A. Powell, 1992. "An Implicitly Directly Additive Demand System: Estimates for Australia," Centre of Policy Studies/IMPACT Centre Working Papers op-73, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Gary Wong, 2001. "Towards A More General Approach To Testing The Time Additivity Hypothesis," School of Economics and Finance Discussion Papers and Working Papers Series 098, School of Economics and Finance, Queensland University of Technology.
    5. Maureen T. Rimmer & Alan A. Powell, 1992. "Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System," Centre of Policy Studies/IMPACT Centre Working Papers op-75, Victoria University, Centre of Policy Studies/IMPACT Centre.
    6. Gary K.K. Wong & Keith R. McLaren, 2002. "Regular and Estimable Inverse Demand Systems: A Distance Function Approach," Monash Econometrics and Business Statistics Working Papers 6/02, Monash University, Department of Econometrics and Business Statistics.
    7. J. G. Hirschberg, 2000. "Modelling time of day substitution using the second moments of demand," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 979-986.
    8. K. K. Gary Wong, 2003. "Towards a more general approach to testing the time additivity hypothesis," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1729-1738.

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