A MACROECONOMIC RATIONING MODEL ESTIMATED BY COINTEGRATION TECHNIQUES AND GENERALIZED-METHOD OF MOMENTS

A macroeconomic rationing model based on nested CES transaction functions for the goods and labour markets is presented. The model is estimated on quarterly data for the Danish private non-agricultural sector, using regime proportion indicators based on business survey information. The focus of the paper is on the method of estimation, which is a two-step procedure. To take account of the fact that some of the variables of the model are integrated of order one, the corresponding parameters are estimated by cointegration techniques (the Johansen method) in the first step. In the second step the other parameters of the model are estimated simultaneously by GMM. It is argued that this two-step estimation procedure is consistent. Finally, the estimation results are used to cast some light on the rise in Danish unemployment in the period 1971-90.