On 19-Sep-05 Colin Badenhorst wrote:
> Hi List,
> 
> I've noticed that the latest version of my estimation software
> now stores the Lagrange multiplier (parameter) for each estimated
> block in my model. I was wondering if anyone had any thoughts on
> how I could use this variable in some practical sense to further
> interpret or validate my estimates. Unfortunately, my understanding
> of the Lagrange multiplier has always been poor, so I'm not sure
> exactly what it means.


In a constrained optimisation problem, e.g. minimising a function
y(x, y, ...) with constraints expressed in the form

  g(x, y, ...) = c

the value of the Lagrange multiplier associated with constraint
g(x, y, ...) = c can be interpreted as the rate of change of the
optimum value of f(x, y, ... ) with respect to change in c.

Otherwise put, if say c1, c2, ... are the values of the constraint
functions, the minimisation of f(x, y, ... ) will lead to a
particular value of f() which will depend on the values of
c1, c2, ... which were used, so it is a function

  fmin(c1, c2, ... )

of these. If U1, U2, ... are the Lagrange multipliers in the
Lagrangean formulation of the problem, then

  U1 = dfmin(c1, c2, ... )/dc1

and similarly for U2 etc.

Does this help?

Best wishes,
Ted.


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E-Mail: (Ted Harding) <[EMAIL PROTECTED]>
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Date: 19-Sep-05                                       Time: 12:33:34
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