Abstract
Despite a vast theoretical literature on the impact of uncertainty on the optimal choice of output and factor inputs empirical applications are still rare. The reason may be that we have too many models all differing in assumptions about the source of uncertaity (prices of inputs or outputs, productivity, demand), the relevant decision variables, the sequence of decisions, the market structure in which a firm operates etc. In many casess the assumptions are so special and restrictive that we get only some rough hints for an empirical analysis (see Hey, 1979 and Aiginger, 1987). Until recently a further problem was the lack of an econometric method to incorporate uncertainty into structural models of firm behaviour. Due to the progress in the specification and estimation theory of ARCH-models (Engle, 1982)) and ARCM-M models(Bollerslev, Engle and Woodridge, 1987) this obstacle is now greatly removed.
I thank seminar participants at the Free University of Berlin and three referees for helpful comments.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Aiginger, K. (1987), Production and Decision Theory under Uncertainty. Oxford, Basil Blackwell.
Bollerslev, T. (1986), Generalized Autoregressive Conditional Heteroscedasticity, Journal of Econometrics, vol. 31, pp. 307–327.
Bollerslev, T., Engle R.F. and Wooldrige, J.M. (1988), A Capital Asset Pricing Model with Time-varying Covariances, Journal of Political Economy, vol. 96, pp. 116–131.
Callen, T.S., Hall, S.G. and Henry, S.G.B. (1990), Manufacturing Stocks: Expectations, Risk and Co-integration, Economic Journal, vol. 100, pp. 756–772.
Demers, M. (1991), Investment under Uncertainty, Irreversibility and the Arrival of Information Over Time, Review of Economic Studies, vol. 58, pp. 333–350.
Dixit, A. (1992), Investment and Hysteresis. Journal of Economic Perspectives, vol. 6, pp. 107–132.
Dorfman, J.H. and Heien, D. (1989), The Effects of Uncertainty and Adjustment Costs on Investment in the Almond Industry, Review of Economics and Statistics, vol. 71, pp. 263–274.
Engle, R.F. (1982), Autoregressive Conditional Heteroscedasticity With Estimates of the Variance of United Kingdom Inflations, Econometrica, vol. 50, pp. 987–1008.
Engle, R.F. and Granger, C.W. (1987), Co-Integration and Error Correction: Representation, Estimation and Testing. Econometrica, vol. 55, pp. 251–276.
Engle, R.F., Granger, C.W.J., and Hallman, J.J. (1989), Merging Short-and Long-Run Forecasts. An Application of Seasonal Cointegration to Monthly Electricity Sales Forecasts, Journal of Econometrics, vol. 40, pp. 45–62.
Engle, R.F., Lilien, D.M. and Robins, R.R. (1987), Estimating Time Varying Risk Premia in the Term Structure: The ARCH-M Model, Econometrica, vol. 55, pp. 391–407.
Flaig, G. and Steiner, V. (1989), Stability and Dynamic Properties of Labour Demand in West German Manufacturing, Oxford Bulletin of Economics and Statistics, vol. 51, pp. 395–412.
Ghosal, V. (1991), Demand Uncertainty and the Capital-Labour Ratio: Evidence from the U.S. Manufacturing Sector, Review of Economics and Statistics, vol. 73, pp. 157–161.
Hartman, R. (1976), Factor Demand with Output Price Uncertainty. American Economic Review, vol. 66, pp. 675–681.
Hey, J.D. (1979), Uncertainty in Microeconomics, Oxford, Martin Robertson.
Ilmankunnas, P. (1990), Testing the Order of Differencing in Quarterly Data: An Illustration of the Testing Sequence, Oxford Bulletin of Economics and Statistics, vol. 52, pp. 79–88.
Johansen, S. and Juselius, K. (1990), Maximum Likelihood Estimation and Inference on Co integration — With Applications to the Demand for Money, Oxford Bulletin of Economics and Statistics, vol. 52, pp. 169–210.
Nichel, S. (1985), Dynamic Models of Labour Demand, in: Ashenfelter, O., and Layard, R. (eds), Handbook of Labour Economics, Amsterdam, North Holland.
Osborn, D.R., Chiu, A.P.L., Smith, J.F. and Birchenhall, C.R. (1988), Seasonality and the Order of Integration for Consumption, Oxford Bulletin of Economics and Statistics, vol. 50 pp. 361–377.
Pagan, A. and Ullah, A. (1988), The Econometric Analysis of Models with Risk Terms, Journal of Applied Econometrics, vol. 3, pp. 87–105.
Pindyck, R.S. (1982), Adjustment Costs, Uncertainty, and the Behavior of the Firm, American Economic Review, vol. 72, pp. 415–427.
Pindyck, R.S. (1991), Irreversibility, Uncertainty, and Investment, Journal of Economic Literature, vol. 29, pp. 1110–1148.
Stock, J.H. (1987), Asymptotic Properties of Least Squares Estimators of Cointegration Vectors, Econometrica, vol. 55, pp. 1035–1056.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1994 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Flaig, G. (1994). Demand Uncertainty and Labour Input in a Bivariate ARCH-M Model. In: Zimmermann, K.F. (eds) Output and Employment Fluctuations. Studies in Empirical Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57989-9_3
Download citation
DOI: https://doi.org/10.1007/978-3-642-57989-9_3
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-642-63426-0
Online ISBN: 978-3-642-57989-9
eBook Packages: Springer Book Archive