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How to fix the sum of coefficient to 1 (OLS)
Posted: Wed Dec 22, 2010 10:43 am
by Aktar
Hello,
i perform Frankel and wei (1994) regression and i want to fix the sum of coefficient to 1 with eviews (for interpreting coefficients loke a percentage), stangerly when i perform normal OLS i find such coefficient extremly high ... i don't know how it is possible.
ex: i regress exchange rate indonésia/australian dollar against exchange rate US/australian dollar, and i find a coefficient regression near of 9800 !
Thanks for help in advance
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Wed Dec 22, 2010 11:00 am
by EViews Glenn
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Thu Dec 23, 2010 7:15 am
by Aktar
tnak you, so i must build my "own programm or is it possible to do this directly with estimate ?
Thank you
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Thu Dec 23, 2010 8:23 am
by trubador
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Mon Dec 27, 2010 7:46 am
by Aktar
thank you very much
I estimated this equation
Code: Select all
c = 0
equation eq1.ls idr = (exp(c(2))/(1+exp(c(2))) * (usd - eur)) + (exp(c(3))/(1+exp(c(3))) * (amu - eur)) + (exp(c(4))/(1+exp(c(4))) * (eur - eur))
vector(4) test = c
vector(4) test_norm
for !i = 2 to 4
test_norm(!i) = @exp(test(!i))/(1+@exp(test(!i)))
next
vector test2 = test_norm/@sum(test_norm) ' coefficients sum to 1
and i find this conclusion : WARNING: Singular covariance - coefficients are not unique
i join my workfile.
Please what should i do for imporve my result, thank for your help.
i join my workfile
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Mon Dec 27, 2010 8:29 am
by startz
You have a typo at the end where you've written eur-eur
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Mon Dec 27, 2010 9:27 am
by Aktar
ok thank you, i tried with this equation :
Code: Select all
equation eq1.ls idr = (exp(c(1))/(1+exp(c(1))) * (usd - idr)) + (exp(c(2))/(1+exp(c(2))) * (amu - idr)) + (exp(c(3))/(1+exp(c(3))) * (eur - idr))
But it doesn't work, the estimate run but the prob. is 1 for all coefficient and these are equal to -36 (i join the new workfile). i do not understnd excatly how it work. Which variable i much soustract ? it is the explain variable (idr) ? Thank you very much for your valuable help
Re: How to fix the sum of coefficient to 1 (OLS)
Posted: Tue Dec 28, 2010 12:49 am
by trubador
First of all, the correct form of the coefficients in your equation would be as follows:
Code: Select all
idr = (exp(c(1))/(exp(c(1)+exp(c(2))+exp(c(3)))) * (usd - idr)) + (exp(c(2))/(exp(c(1)+exp(c(2))+exp(c(3)))) * (amu - idr)) + (exp(c(3))/(exp(c(1)+exp(c(2))+exp(c(3)))) * (eur - idr))
This equation becomes nonlinear in coefficients, which makes the estimation harder. You may need to supply good initial values to obtain feasible results.
However, I think your model is ill-defined. There is a significant scale problem between your dependent and independent variables. Therefore, I think the variables should be defined in (log)returns, not the levels. Please check with your reference paper...