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Measurim The Covariance Matrices Of Restricted Reduced Form Coefficients With Small Size Computers

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  • Huang, Kuo S.

Abstract

The restricted reduced form equation system derived from a simultaneous structural model is the system used for forecasting and of immediate concern to policy decisionmakers and forecasters. For verifying the significance of restricted reduced form coefficients and for measuring the confidence of forecasts, the covariance matrices of these coefficients are required. However, the computation of the covariance matrix of restricted reduced form coefficients involves a heavy workload for a large size model, and the computer software packages for this computation are usually not available. This paper formulates an operational procedure which can be easily implemented by applied econometricians for computing such a matrix. In particular, the procedure, which computes the covariance matrix in a sequential block by block fashion, is computationajefficient and suitable for programming in computers without larger core capacity. In fact, the limitation of core capacity is a critical factor to consider for programming with the increasing/ use of personal computers. Besides, as discussed later, the estimation procedure could be more accurate than that of the pioneer work developed by Goldberger, et al.(1961).

Suggested Citation

  • Huang, Kuo S., 1985. "Measurim The Covariance Matrices Of Restricted Reduced Form Coefficients With Small Size Computers," 1985 Annual Meeting, August 4-7, Ames, Iowa 278635, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea85:278635
    DOI: 10.22004/ag.econ.278635
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    References listed on IDEAS

    as
    1. Dhrymes, Phoebus J, 1973. "Restricted and Unrestricted Reduced Forms: Asymptotic Distribution and Relative Efficiency," Econometrica, Econometric Society, vol. 41(1), pages 119-134, January.
    2. McCarthy, Michael D, 1972. "A Note on the Forecasting Properties of Two Stage Least Squares Restricted Reduced Forms-The Finite Sample Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 757-761, October.
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