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Polynomial Approximations in Cross-Sectional Models

R. P. Byron
Journal of Applied Econometrics
Vol. 7, No. 3 (Jul. - Sep., 1992), pp. 309-322
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2285101
Page Count: 14
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Polynomial Approximations in Cross-Sectional Models
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Abstract

The time-series distributed lag techniques of econometrics can be usefully applied to cross-sectional, spatial and cross-section time-series situations. The application is perfectly natural in cross-section, time-series models when regression coefficients evolve systematically as the cross-section grouping variable changes. The evolution of such coefficients lends itself to polynomial approximation or more general smoothing restrictions. These ideas are not new, Gersovitz and McKinnon (1978) and Trivedi and Lee (1981) providing two of the earliest applications of cross-equation smoothing techniques. However, their applications were in the context of coefficient variation due to seasonal changes and this may account for the non-diffusion of these techniques. The approach here is illustrated in the context of age-specific household formation equations based on census data, using Almon polynomials when the regression coefficients vary systematically by age group. A second application is provided, using spatial data, explaining the incidence of crime, by region; using polynomial and geometric smoothing to model distance declining regional effects.

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