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Thread: reduced-form system

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    reduced-form system




    Hi,

    I am buiding a supply and demand model. I have one price and one demand equation and would like to compare the different coeffecients through a reduced form system.

    P=X+Z
    Q=P+X

    However they are in different magnitude (different datasets), so i cannot compare the marginal effects.
    I was thinking of converting the marginal effects into elasticities, is this an ok way of doing so?
    Any other idea?
    Last edited by bodesmiller; 04-18-2015 at 12:44 PM.

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    Re: reduced-form system

    Yes, you have the general idea correct. More specifically, I suspect that what you would want to consider is the Cross Elasticity of Demand because it measures the percentage change in the quantity of X consumed in response to a 1% change in the price of some other good (e.g., Y).

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    Re: reduced-form system


    Thanks for your reply, Dragan, though I am still having problems.
    I will try to add some information:
    I am trying to compare the net effect of dummy variables (months) on the dependent variables (Q). The dummies are present in both models, and is represented by the matrix X.

    the problem is that one of the regression is done by aggregating data and the second is done on individual data. Thus, the marginal effect are different and cannot be compared. So I am having a hard time finding out how I can find the net effects of them (the dummies). I have tried to comapre them into percental changes, but I cannot manage it (might be my lack of skills in math). Have anyone done anything like this or know what may help me on my way?
    Last edited by bodesmiller; 04-19-2015 at 11:08 AM.

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