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with a substantial influence possibly attributed to the compatability
of the restricted reduced form with the process generating the additional
data. Remember that the structural parameters are not derived from
minimizing the reduced form errors. The directly updated reduced form
model, however, will be conditioned more by reduced form errors since
the strength of the structural restrictions will deteriorate as additional
measurement updates are made.
The Recursive Structural Model
Simultaneous equation models may offer advantages to least squares
estimation of an unrestricted reduced form if the structural model
provides useful restrictions that lead to more precise parameter
estimates over the forecast interval. A problem typically hampering
the use of many simultaneous equation models as forecasting tools is
the requirement that many so-called predetermined variables must be
forecast over the prediction period as well (Johnson). While methods
are availbalbe for evaluating forecast variances for such models
(Feldstein) they appear to weaken the structural approach particularly
when the predetermined variables must be forecast for example using
time series methods (Granger and Newbold).
In view of this, the recursive model specified uses predetermined
variables which are either deterministic or lagged two or more quarters.
The model relates quarterly Choice steer prices to current levels of
fed and non-fed cattle slaughter and pork production. A trend variable
is included to account for all other factors, particularly growth
in consumer income given that fed beef is generally assumed to be a