Shrinking the Posterior: A Note on the Nerlovian Model

Richard Tiffin ()

Journal of Agricultural Economics, 2004, vol. 55, issue 1, 115-121

Abstract: 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.

Date: 2004
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