Shrinking the Posterior: A Note on the Nerlovian Model

Diebold and Lamb (1997) argue that since the long‐run elasticity of supply derived from the Nerlovian model entails a ratio of random variables, it is without moments. They propose minimum expected loss estimation to correct this problem but in sodoing ignore the fact that a non white‐noise‐error is...

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Bibliographic Details
Published in:Journal of agricultural economics 2004-03, Vol.55 (1), p.115-121
Main Author: Tiffin, Richard
Format: Article
Language:English
Subjects:
Agricultural economics
Agriculture
Estimation
Supply
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Summary:Diebold and Lamb (1997) argue that since the long‐run elasticity of supply derived from the Nerlovian model entails a ratio of random variables, it is without moments. They propose minimum expected loss estimation to correct this problem but in sodoing ignore the fact that a non white‐noise‐error is implicit in the model. We show that, as a consequence the estimator is biased and demonstrate that Bayesian estimation which fully accounts for the error structure is preferable.
ISSN:0021-857X
1477-9552
DOI:10.1111/j.1477-9552.2004.tb00083.x