Model Selection, Estimation, and Marginal Effects for Markets in Equilibrium and Disequilibrium

44 Pages Posted: 11 Mar 2020

Date Written: January 24, 2020

Abstract

I examine an equilibrium and four prevalent disequilibrium model specifications under joint-normally distributed shocks and propose a statistical method for assessing whether a market is in an equilibrium state. I derive the marginal effects on the shortage probabilities and illustrate how one can interpret them. I provide analytic expressions for the gradients of all the models and the Hessians of the equilibrium and two of the disequilibrium models. Lastly, I use simulations to illustrate the performance of the models concerning, firstly, their estimation accuracy and, secondly, the computational gains of using gradient-based likelihood optimization methods.

Keywords: disequilibrium, marginal effects, model selection, maximum likelihood, Markov switching

JEL Classification: C01, C18, C34, C52, D50, D45

Suggested Citation

Karapanagiotis, Pantelis, Model Selection, Estimation, and Marginal Effects for Markets in Equilibrium and Disequilibrium (January 24, 2020). Available at SSRN: https://ssrn.com/abstract=3525622 or http://dx.doi.org/10.2139/ssrn.3525622

Pantelis Karapanagiotis (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 33673 (Phone)

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