May 2014
Article
Economics Letters

Bias in Reduced-form Estimates of Pass-through

By: Alexander MacKay, Nathan H. Miller, Marc Remer and Gloria Sheu

Format:Print

Abstract

We show that, in general, consistent estimates of cost pass-through are not obtained from reduced-form regressions of price on cost. We derive a formal approximation for the bias that arises even under standard orthogonality conditions. We provide guidance on the conditions under which bias may frustrate inference.

Keywords

Pass-through; Reduced-form Aggression; Bias

Citation

MacKay, Alexander, Nathan H. Miller, Marc Remer, and Gloria Sheu. "Bias in Reduced-form Estimates of Pass-through." Economics Letters 123, no. 2 (May 2014): 200–202.