Research

Identification by Disaggregation

Standard economic theory predicts that the actions of individual participants in competitive markets have negligible effects on market-determined aggregates. Applied researchers, and even some econometric textbooks, incorrectly infer from this that market prices can be modeled as econometrically exogenous with respect to the quantity demanded of an individual consumer. This faulty inference has even led some researchers (for example, Robert Engle, 1978; Nicholas Kiefer, 1984; Roger Waud, 1974) to employ an estimation strategy we call identification by disaggregation (IBD). This procedure attempts to circumvent the simultaneity problem in a macro regression by disaggregating the dependent variable and estimating the relationship for individual agents or sectors. This note provides a simple proof that estimates using disaggregated dependent variables suffer, on average, from the same degree of simultaneity bias as the estimates using aggregate data.

Publication Information
Article Title: Identification by Disaggregation
Journal: American Economic Review (Dec, 1985)
v. 75, iss. 5, pp. 1165-1167
Author(s): Cushing, Matthew J;  McGarvey, Mary G
Researcher Information
    
Cushing, Matthew J
Cushing, Matthew J
Professor of Economics
Expertise:
  • Labor Economics
  • Econometrics
  • Macroeconomics
Economics
CoB 525 U
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-2323
Fax: (402) 472-9700
mcushing1@unl.edu
McGarvey, Mary G
McGarvey, Mary G
Associate Professor of Economics
Expertise:
  • Applied Econometrics
  • Public Policy Analysis
  • Economics of Obesity
  • Labor Markets
Economics
CoB 525 P
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-9415
mmcgarvey1@unl.edu