Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249141 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers No. 951
Publisher: 
Statistics Norway, Research Department, Oslo
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.
Subjects: 
Demand elasticity
Panel data
Two-stage estimator
JEL: 
C13
C33
C36
Document Type: 
Working Paper

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