Economics Brown Bag Seminar - Joe Hirschberg (The University of Melbourne)

Room 315, Level 3, FBE Building, 111 Barry Street, Carlton

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Faisal Sohail and Aaron Barkley

Title: Ratios of Parameters: Some Econometric Examples joint w. Jenny Lye

Abstract: Ratios of parameter estimates are often used in econometric applications.  However, constructing confidence intervals for these ratios can cause difficulties since the ratio of asymptotically normally distributed random variables are Cauchy distributed thus they have no finite moments. This paper presents a method for the estimation of confidence intervals based on the Fieller approach that has been shown to be preferable to the usual Delta method.  Using example applications in Stata and R, we demonstrate that a few extra steps in the examination of the estimate of the ratio can provide a confidence interval with superior coverage.