Estimation Results

Abstract

The several versions of the model are estimated with quarterly data over the period 1967.2 to 1985.4 (while the data from 1986.1 to 1989.4 will be used to test post-sample parameter stability). The appropriate likelihood functions, discussed in the preceding section, are concentrated with respect to Ω and maximized using the Davidon-Fletcher-Powell algorithm as implemented in the computer package GQOPT (R.E. Quandt). Starting values for the parameters can be obtained by setting the transformation parameters in [19º] to plausible values, calculating the latent demand and supply variables and regressing them on the explanatory variables of the corresponding equations by single-equation nonlinear least squares. The subsequent ML-estimation accounts for simultaneity of the endogenous variables, cross-equation parameter restrictions and contemporaneous correlation of error terms. Standard errors of the estimated parameters are derived in the usual manner from the approximate inverse of the Hessian at the maximum of ln £.