Dear all

I am working with a consumption model based on two time series with unit
roots that cointegrate into a stationary relation.

I am trying to estimate short run and long run price elasticities using
Granger's cointegration equation and an Error Correction Model.

I am finding that SR elasticities are higher than LR elasticities
 so consumers initially seem to overreact to price changes. Is this too
"abnormal", too "pathological"??? Do you happen to know about another
example where this phenomenom has been found or could be found reasonable?

Any hints on this would be sincerely appreciated

Rober


===============================================================================
Roberto Martinez-Espineira

Environment Department	
University of York

Tel 44 01904 43 4067
e-mail [log in to unmask]
http://www-users.york.ac.uk/~rme103/webpage1_htm.html
===============================================================================
Thought of the day:

"I haven't failed, I've found 10,000 ways that don't work"
 --Benjamin Franklin

On Mon, 24 Jul 2000, R Martinez-Espineira wrote:

> 
> Dear all:
> 
> I would like to ask for help on the following.
> >
> > When one uses panel data and needs to resort to Fixed Effects
> Estimation (FEE)
> > the problem arises that some of the regressors might not vary in time
> and,
> > therefore, they are "wiped out" by the transformations involved
> > in the FEE (as these consist of finding the "within group" variation
> of the
> > regressors).
> 
> A solution proposed by Hausman and Taylor (1981), HT, suggest
> substituting in a OLS
> model the problematic variables with instrumental variables that are
> assumed not to
> be correlated with the fixed effects. The HT estimator requires that the
> number of
> exogenous time-varying variables to be greater than the number of
> variables X1,
> that are both endogenous (and are therefore correlated with the fixed
> effects,
> which invalidates OLS analysis) and static (so they are swept away when
> more
> conventional methods are used to isolate them from the fixed effects).
> 
> This problem happens often when we analyse labour supply data and we
> find that the characteristics
> of people (race, schooling, gender) do not change for each individual,
> but whose effects are
> interesting to estimate.
> 
> Amemiya and MaCurdy (1986) (AM), and Breusch, Mizon and Schmidt (1989)
> (BMS)
> suggest the use of additional instruments that are valid under
> increasingly
> restrictive exogeneity conditions. These additional instruments add
> explanatory
> power if there is a variation in time of the correlation between the X1
> = exogenous
> and time-varying regressors  and Z2 = static and endogenous regressors.
> 
> My understanding is that there would be no gain if the set Z2 is empty.
> Is there?
> Should I expect the estimates to be very similar but different... should
> I expect
> the t-ratios to decrease ...as I go from HT to AM and BMS? or should the
> three
> estimations yield exactly the same result if Z2 is empty so that it
> cannot play any
> role?
> 
> I would appreciate any comments on this.
> 
> Rober
> 
> The references mentioned are:
> 
> Hausman, J. and W.E. Taylor (1981) “Panel Data and Unobservable
> Individual
> Effects.” Econometrica. Vol. 49, No. 6, p. 1377-1398
> 
> Amemiya, T. and T.E. MaCurdy (1986) “Instrumental-Variable Estimation of
> an
> Error-Components Model”. Econometrica. Vol. 54, No 4, p. 869-880
> 
> Breusch, T.S., G.E. Mizon and P. Schmidt (1989) ”Efficient Estimation
> Using Panel
> Data.” Econometrica 57, No. 3, p. 695-700
> 
> 
> 
> 
> --
> ======================================================================
> Roberto Martinez-Espineira
> Environment Department
> University of York
> Heslington
> York  YO1 5DD
> 
> Tel:    +44 (0)1904 434067
> E-mail:  [log in to unmask]
> Webpage:   http://www-users.york.ac.uk/~rme103/webpage1_htm.html
> ======================================================================
> 
> Quote of the day:
> 
> "Let us so live that when we come to die even the undertaker
>  will be sorry"
>  --Mark Twain
> 
> 
> 
> 





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