A Consideration in Estimating “Almost Nonsimultaneous” Market Models

Feedback effects in markets with simultaneously determined variables create problems for OLS estimation. When only a component of a market is modeled, feedbacks are weakened. If the component is small enough, the model may become “almost nonsimultaneous,” and most researchers then consider OLS as generally acceptable. However, even without strong feedbacks, equilibrium market behavior may nonetheless create the same estimation problems as in the larger simultaneous model. This can arise when behavior in the component markets represents similar responses to factors in the overall market. Then the criterion of market size in selecting an estimation technique may be insufficient.