Estimating disequilibrium models with limited a priori price-adjustment information

Economic theory imposes few a priori conditions on price adjustment and thus requires econometric disequilibrium models to be both sufficiently general and computationally tractable. The switching regression model of Lee and Porter (1984) meets these requirements. Unlike previous models, price adjustment enters without an explicit adjustment equation or the restriction that price changes reveal the sign of excess demand. I apply the model to the U.S. commercial loan market from 1979–1984. The estimates suggest a pattern of excess demand consistent with the financial developments of the period.