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Imperfect Price Deflation in Production Systems
Author(s) -
Pope Rulon D.,
LaFrance Jeffrey T.,
Just Richard E.
Publication year - 2007
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2007.00986.x
Subject(s) - observational error , econometrics , deflation , monte carlo method , imperfect , economics , production (economics) , sample (material) , profit (economics) , aggregate (composite) , mathematics , statistics , microeconomics , monetary policy , linguistics , philosophy , chemistry , chromatography , monetary economics , materials science , composite material
Numéraire prices that are measured with error create challenges for econometric estimation. A straightforward approach for a model with linear input demands, such as generated from a quadratic normalized profit function, is proposed where the numéraire price is measured with error. Numéraire measurement error is likely because expected output price is measured imperfectly by actual output price. An approach using generalized method of moments is developed to estimate such errors‐in‐variables (EIV) systems that avoids use of extra‐sample data or additional structural specifications. Monte Carlo examination of small sample properties shows promise. Measurement error is statistically significant using aggregate U.S. agricultural data.