Physical Sciences and Mathematics Commons^™

Modeling Factor Demand Systems With Sem And Var: An Empirical Comparison, Matteo Manera

Matteo Manera

The empirical analysis of the economic interactions between factors of production, output and corresponding prices has received much attention over the last two decades. Most contributions in this area have agreed on the neoclassical principle of a representative optimizing firm and typically use theory-based structural equation models (SEM). A popular alternative to SEM is given by the vector autoregression (VAR) methodology. The most recent attempts to link the SEM approach with VAR analysis in the area of factor demands concentrate on single-equation models, whereas no effort has been devoted to compare these alternative approaches when a firm is assumed to …