Coping with Unobservables in Estimating Production Functions: An Example with US Banking Data

Swamy PAVB, Peter von zur Muehlen, and I-Lok Chang, "Coping with Unobservables in Estimating Production Functions: An Example with US Banking Data," Sustainable Futures, No.3, 2021

10 Pages Posted: 22 Jul 2022

See all articles by P.A.V.B. Swamy

P.A.V.B. Swamy

Federal Reserve Board

Peter von zur Muehlen

Federal Reserve Board

I-Lok Chang

American University - Department of Mathematics & Statistics

Date Written: November 11, 2021

Abstract

This paper (i) derives a number of properties of a newly specified multi-input-single-output (MISO) production function with a derived error term, and (ii) using iteratively rescaled generalized least squares, presents estimates of the cross-sectionally varying coefficients of a multi-input-multi-output (MIMO) production function with a derived error term based on newly derived conditions for estimating the total effects of its regressors on its dependent variable, when an unknown number of unobserved inputs is potentially involved in production. The results indicate that for the years 2008, 2009, and 2010, the coefficient estimates do not contain simultaneous-equations biases, bank heterogeneity is not pronounced, and non-transaction accounts turn out to be the dominant input.

Keywords: Multi-input-single-output (MISO) production, Multi-input-multi-output (MIMO) production, Inter-bank heterogeneity, Consistent estimation, Direct effects, Indirect effects, Total effects, random coefficients, coefficient drivers.

JEL Classification: C13 C18, C21, C51, C52, D24

Suggested Citation

Swamy, P.A.V.B. and von zur Muehlen, Peter and Chang, I-Lok, Coping with Unobservables in Estimating Production Functions: An Example with US Banking Data (November 11, 2021). Swamy PAVB, Peter von zur Muehlen, and I-Lok Chang, "Coping with Unobservables in Estimating Production Functions: An Example with US Banking Data," Sustainable Futures, No.3, 2021, Available at SSRN: https://ssrn.com/abstract=4159773

P.A.V.B. Swamy (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Peter Von zur Muehlen

Federal Reserve Board ( email )

10435 Hunter View Road
Vienna, VA VA 22181
United States
5713281783 (Phone)

I-Lok Chang

American University - Department of Mathematics & Statistics ( email )

Washington, DC
United States

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