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Name: Chandranshu Jain Roll No.: 21026765006 Group A Practical

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8 views4 pages

Name: Chandranshu Jain Roll No.: 21026765006 Group A Practical

Uploaded by

ankushstatsdu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: Chandranshu Jain

Roll No.: 21026765006


Group A
Practical

Aim: To estimate structural parameters of given simultaneous equation model using Indirect Least
square estimation technique.

Problem:
For the following data , perform the following tasks:
(i)Check the identifiability of the system.
(ii) Obtain the reduced form of the given system.
(iii)Estimate the parameter using Indirect Least square(ILS) method.

Time Quantity Price Income Time Quantity Price Income


1975 66 88 4789 1990 90 103 15349
1976 67 87 5282 1991 90 101 15722
1977 71 83 5804 1992 96 101 16485
1978 73 89 6417 1993 91 102 17204
1979 78 98 7073 1994 101 105 18004
1980 75 107 7716 1995 96 112 18665
1981 81 111 8439 1996 100 127 19490
1982 82 98 8945 1997 104 115 20323
1983 71 108 9775 1998 105 107 21291
1984 81 111 10589 1999 108 97 22491
1985 85 98 11406 2000 108 96 23862
1986 82 87 12048 2001 108 99 24722
1987 84 86 12766 2002 107 105 25501
1988 80 104 13685 2003 108 111 26463
1989 86 109 14546 2004 112 117 27973

Theory:
Indirect Least Square Estimation:
It has the following 2 steps:
(1)Apply OLS estimation to each of the reduced form equations and obtain OLS estimators
of reduced form coefficients.
(2)Obtain indirect least square estimators of the structural coefficients by the algebraic
relations between structural and reduced form coefficients.

For the given case ,we have structural equations:


Demand Function:
𝑸𝒅𝒕 = 𝜶𝟎 + 𝜶𝟏 𝑷𝒕 + 𝜶𝟐 𝒀𝒕 + 𝒖𝟏𝒕 , 𝜶𝟏 < 𝟎, 𝜶𝟐 > 𝟎

Supply Function:
𝑸𝒔𝒕 = 𝜷𝟎 + 𝜷𝟏 𝑷𝒕 + 𝒖𝟐𝒕 , 𝜷𝟏 > 𝟎
Equilibrium Function:
𝑸𝒔𝒕 = 𝑸𝒅𝒕 = 𝑸𝒕

Here 𝑄𝑡𝑠 𝑎𝑛𝑑 𝑄𝑡𝑑 are quantity supplied and quantity demanded respectively.
Pt: Price of the commodity
Yt: Income

Using Equilibrium conditions:


𝑸𝒔𝒕 = 𝑸𝒅𝒕

𝜷𝟎 + 𝜷𝟏 𝑷𝒕 + 𝒖𝟐𝒕 = 𝜶𝟎 + 𝜶𝟏 𝑷𝒕 + 𝜶𝟐 𝒀𝒕 + 𝒖𝟏𝒕
Solving which we get
𝑷𝒕 = 𝝅𝟎 + 𝝅𝟏 𝒀𝒕 + 𝒗𝟏𝒕

𝜷 −𝜶 −𝜶𝟐 𝒖𝟐𝒕 −𝒖𝟏𝒕


Where 𝝅𝟎 = 𝜶𝟎 −𝜷𝟎 , 𝝅𝟏 = 𝜶 and 𝒗𝟏𝒕 =
𝟏 𝟏 𝟏 −𝜷𝟏 𝜶𝟏 −𝜷𝟏
Putting Pt in Qt we get

𝑸𝒕 = 𝝅𝟐 + 𝝅𝟑 𝒀𝒕 + 𝒗𝟐𝒕

Where
𝜶 𝜷 −𝜷 𝜶 −𝜶𝟐 𝜷𝟏 𝒖 𝜶 −𝜷 𝒖
𝝅𝟐 = 𝟏 𝜶𝟎 −𝜷𝟏 𝟎 , 𝝅𝟐 = 𝜶 −𝜷 , 𝒗𝟐𝒕 = 𝟐𝒕𝜶𝟏 −𝜷𝟏 𝟏𝒕.
𝟏 𝟏 𝟏 𝟏 𝟏 𝟏

Thus ,from OLSE of reduced form coefficients, structural form coefficients are obtained as
𝜷𝟏 = 𝝅𝟑 /𝝅𝟏 and 𝜷𝟎 = 𝝅𝟐 − (𝝅𝟑 /𝝅𝟏 ) ∗ 𝝅𝟎
Supply function is identified but since no unique estimates of 𝛼0 , 𝛼1 , 𝛼2 can be obtained
,thus demand function is not identified.

Steps:
(1)Applying Linear Regression
(A) Analyze→Regression→Linear→Dependent :Price→Independent:Income→OK
(B) Analyze→Regression→Linear→Dependent :Quantity→Independent:Income→OK
From above two regression,we get 𝝅𝟎 , 𝝅𝟏 , 𝝅𝟐 𝒂𝒏𝒅 𝝅𝟑 .

Output:
1:Regression of Price on Income
Table 1

Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .494 a .244 .217 9.10670
a. Predictors: (Constant), Income

Table 2
ANOVAa
Sum of
Model Squares df Mean Square F Sig.
1 Regression 749.770 1 749.770 9.041 .006b
Residual 2322.096 28 82.932
Total 3071.867 29
a. Dependent Variable: Price
b. Predictors: (Constant), Income

Table 3

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 90.961 4.051 22.456 .000
Income .001 .000 .494 3.007 .006
a. Dependent Variable: Price

2:Regression of Quantity on Income

Table 4

Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .969a .940 .938 3.50870
a. Predictors: (Constant), Income

Table 5

ANOVAa
Sum of
Model Squares df Mean Square F Sig.
1 Regression 5384.760 1 5384.760 437.395 .000b
Residual 344.707 28 12.311
Total 5729.467 29
a. Dependent Variable: Quantity
b. Predictors: (Constant), Income

Table 6
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 59.771 1.561 38.299 .000
Income .002 .000 .969 20.914 .000
a. Dependent Variable: Quantity

Calculation:
We get reduced form coefficients as
𝝅𝟎 = 90.961 , 𝝅𝟏 = .001 , 𝝅𝟐 = 59.771 , 𝜋3 =.002
Structural coefficients are :
𝜷𝟏 = 𝝅𝟑 /𝝅𝟏 and 𝜷𝟎 = 𝝅𝟐 − (𝝅𝟑 /𝝅𝟏 ) ∗ 𝝅𝟎

𝜷𝟏 = 𝟐
and 𝜷𝟎 = −𝟐𝟖. 𝟓𝟖𝟏

Result:
(i) Supply function is identified but since no unique estimates of 𝛼0 , 𝛼1 , 𝛼2 can be obtained
,thus demand function is not identified.
(ii)Reduced form of the given system
(A) Reduced form of price and income
𝑷𝒕 = 90.961 + .001𝑌𝑡
(B) Reduced form of quantity and income
𝑄𝑡 = 59.771 + 0.02𝑌𝑡
(iii) Structural form:
Supply Function:
𝑄𝑡𝑠 = −𝟐𝟖. 𝟓𝟖𝟏 + 2 𝑃𝑡

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