Interpreting Estimation Results of Euler Equation Investment Models when Factor Markets are Imperfectly Competitive

Janz, Norbert

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URL:	http://ub-madoc.bib.uni-mannheim.de/690
URN:	urn:nbn:de:bsz:180-madoc-6908
Document Type:	Working paper
Year of publication:	1997
The title of a journal, publication series:	None
Publication language:	English
Institution:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: E22 C50 D92 ,
Subject headings (SWD):	Arbeitsmarkt , Lohn , Investor
Abstract:	In this paper the standard Euler equation investment model with imperfectly competitive product markets is extended for imperfectly competitive structures on the factor markets: labour markets and markets for investment goods. This extension leads to two additional explanatory variables in the Euler equation. Although economically reasonable, the resulting equation for a simple reason cannot be estimated: parts of the explanatory variables are perfectly collinear. For estimation purposes at least one of these variables has to be neglected. Neglecting one of the additional variables, the coeffcients to be estimated have to be interpreted as linear combinations of the 'true' coeffcients. The differences between the 'true' coeffcients and the linear combinations are numerically demonstrated.
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