Measurement Error with Accounting Constraints: Point and Interval Estimation for Latent Data with an Application to U.K. Gross Domestic Product

Abstract

An econometric methodology is proposed for reconciling inaccurate measures of latent data which are subject to accounting constraints. The method deals with the case in which the measurement errors are serially correlated, generalizing previous contributions. A class of efficient estimators are derived for the latent data. Consistent estimators for the weight matrices applied to the observed information based on a linear regression procedure are obtained together with confidence interval estimators for these weight matrices. Approximate confidence intervals are suggested for the latent data themselves together with specification tests for the assumptions underlying the procedure. An application of the proposed method is made to U.K. Gross Domestic Product in constant prices for 1958Q1-1989Q4.