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POSTPONED: Normalizations and misspecification in skill formation models by Joachim Freyberger

Date: 12:30 24 March 2020 - 13:30 24 March 2020
Type: Seminar
Speaker: Joachim Freyberger University of Bonn
Venue: The Institute for Fiscal Studies
Prices: Free


Please not that this cemmap seminar is postponed until futher notice. 

An important class of structural models investigates the determinants of skill formation and the optimal timing of interventions. To achieve point identification of the parameters, researcher typically normalize the scale and location of the unobserved skills.  This paper shows that these seemingly innocuous restrictions can severely impact the interpretation of the parameters and counterfactual predictions. For example, simply changing the units of measurements of observed variables might yield ineffective investment strategies and misleading policy recommendations. To tackle these problems, this paper provides a new identification analysis, which pools all restrictions of the model, characterizes the identified set of all parameters without normalizations, illustrates which features depend on these normalization, and introduces a new set of important policy-relevant parameters that yield robust conclusions. As a byproduct, this paper also presents a general and formal definition of when restrictions are truly normalizations. 

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