The Log of Gravity
Tóm tắt
Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: under heteroskedasticity, the parameters of log-linearized models estimated by OLS lead to biased estimates of the true elasticities. We explain why this problem arises and propose an appropriate estimator. Our criticism of conventional practices and the proposed solution extend to a broad range of applications where log-linearized equations are estimated. We develop the argument using one particular illustration, the gravity equation for trade. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method.
Từ khóa
Tài liệu tham khảo
Anderson J., 1979, American Economic Review, 69, 106
Boisso D., 1997, Journal of Economic Integration, 12, 456
McCallum J., 1995, American Economic Review, 85, 615
Ramsey J. B., 1969, Journal of the Royal Statistical Society B, 31, 350
Tenreyro S., 2002, FRB Boston series working paper, 4