Providing intuition to the Fieller Methodwith two geometric representationsusing STATA and Eviews

Abstract

The Fieller Method for the construction of confidence intervals for ratios of the expectedvalue of two normally distributed random variables has been shown by a number of authorsto be a superior method to the delta approximation. However, it is not widely used due inpart, to the tendency to present the intervals only in a formula context. In addition, potentialusers have been deterred by the potential difficulty in interpreting non-finite confidenceintervals when the confidence level is less than 100%. In this paper we present two graphicalmethods which can be easily constructed using two widely used statistical software packages(Eviews and Stata) for the representation of the Fieller intervals. An application is presentedto assess the results of a model of the non-accelerating inflation rate of unemployment(NAIRU).