Methods of Estimating Price Effects in Input-Output Relations

Abstract

In chapter 4 we mentioned that the assumption of the homogeneity of the output of each sector is retained. It implies that between sectors the inputs are mutually independent. Consequently, we can estimate the parameters of the production function, assumed to represent the technology of a particular sector j, independent of those for other sectors. In this chapter the subscript “j” denotes that particular sector for which we wish to estimate the parameters of the production function. Section 5.2 is devoted to notation since in economic theory and in econometrics different kinds of standard notation are in vogue. Sometimes the same symbol is used but in different senses in econometrics and in theoretical economics. Therefore, we have to define our symbols carefully. In that section we show that all four economic models developed in chapter 4 can be written in the form of the same estimation model. In section 5.3 we specify the methods we have used to estimate that model, and in section 5.4 we present some concluding remarks with respect to applying the estimation methods to our generalized models.