The econometric analysis of models with risk terms
Article first published online: 7 NOV 2006
Copyright © 1988 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 3, Issue 2, pages 87–105, April 1988
How to Cite
Pagan, A. and Ullah, A. (1988), The econometric analysis of models with risk terms. J. Appl. Econ., 3: 87–105. doi: 10.1002/jae.3950030202
- Issue published online: 7 NOV 2006
- Article first published online: 7 NOV 2006
- Manuscript Revised: DEC 1987
- Manuscript Received: JUN 1986
In this paper we have attempted to provide an integrated approach to the estimation of models with risk terms. It was argued that there exist orthogonality conditions between variables in the information set and higher-order moments of the unanticipated variable density. These could be exploited to provide consistent estimators of the parameters associated with the risk term. Specifically, it was recommended that an IV estimator should be applied, with instruments constructed from the information set. Four existing methods commonly used to estimate models with risk terms are examined, and applications of the techniques are made to the estimation of the risk term in the $US/$C exchange market, and the effects of price uncertainty upon production.