On the estimation of simultaneous-equations error-components models with an application to a model of developing country foreign trade

Citation
T. Kinal, et K. Lahiri,, On the estimation of simultaneous-equations error-components models with an application to a model of developing country foreign trade, Journal of applied econometrics , 8(1), 1993, pp. 81-92
ISSN journal
08837252
Volume
8
Issue
1
Year of publication
1993
Pages
81 - 92
Database
ACNP
SICI code
Abstract
An empirical balance of payments model involving the demand and supply of imports and exports for 31 developing countries is estimated utilizing panel data over 1964-1987. In order to compute error-components 3SLS estimates of this model, which requires different instruments for different equations, we propose a generalization of the Fuller-Battese transformation to obtain GMM estimates. Our empirical results suggest that very little of the short-run adjustment in external imbalances is likely to be achieved by exchange rate policies, and most of the burden must fall on aggregate demand management.