A two-stage pooled panel data estimator of demand elasticities

Thomas von Brasch () and Arvid Raknerud
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Arvid Raknerud: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: In a seminal paper, Feenstra (1994) developed an instrumental variable estimator which is becoming increasingly popular for estimating demand elasticities. Soderbery (2015) extended this estimator and created a routine which was shown to be more robust to data outliers when the number of time periods is small or moderate. In this paper, we extend the Feenstra/Soderbery (F/S) estimator along two important dimensions to obtain a more efficient estimator: we handle the cases where there are no simultaneity problems, i.e. when supply is either elastic or inelastic, and we generalize the current practice of choosing a particular reference variety by creating a pooled estimator across all possible reference varieties. Using a Monte Carlo study, we show that our proposed estimator reduces the RMSE compared to the F/S estimator by between 60 and 90 percent across the whole parameter space.

Keywords: Demand elasticity; Panel data; Two-stage estimator (search for similar items in EconPapers)
JEL-codes: C13 C33 C36 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-04
New Economics Papers: this item is included in nep-cwa and nep-ecm
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