Smooth coefficient estimation of a seemingly unrelated regression

This paper proposes estimation and inference for the semiparametric smooth coefficient seemingly unrelated regression model. We discuss the imposition of cross-equation restrictions which are required by economic theory as well as methods for data driven bandwidth selection. A test of correct functional form for the entire system of equations is also constructed. Asymptotic and finite sample results are given. We illustrate our estimator by applying it to a cost system for US commercial banks. Our results show that most of the banks are operating under increasing returns to scale, but that returns to scale decrease with bank size. (C) 2015 Elsevier B.V. All rights reserved.