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The examination of the validity of the Divisia price index for the almost ideal demand system model: Some Monte Carlo results

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  • Manami Ogura

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    (Graduate School of Economics, Kobe University)

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    Abstract

    In this paper, we have investigated about the validity of an exact price index suggested by Feenstra and Reindorf (2000) in the almost ideal demand (AID) system model. This index can express by the use of the Divisia index with the weighted shares, and it has been evaluated using data on the expenditure shares and prices at two data points. Our Monte Carlo experiments show that the Divisia index does not perform so suitable estimates in any design. And then we find that the Divisia index would yield the poor estimates against the AID price index.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2008)
    Issue (Month): 14 ()
    Pages: 1-10

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    Handle: RePEc:ebl:ecbull:eb-07c50005

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    Related research

    Keywords: Demand system AID model Divisia price index;

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    1. Alston, Julian M & Foster, Kenneth A & Green, Richard D, 1994. "Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 351-56, May.
    2. Pashardes, Panos, 1993. "Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation," Economic Journal, Royal Economic Society, vol. 103(419), pages 908-15, July.
    3. Chen, Kevin Z., 1998. "The symmetric problem in the linear almost ideal demand system," Economics Letters, Elsevier, vol. 59(3), pages 309-315, June.
    4. Adolf Buse & Wing H Chan, 2000. "Invariance, price indices and estimation in almost ideal demand systems," Empirical Economics, Springer, vol. 25(3), pages 519-539.
    5. Wyatt Thompson, 2004. "Using Elasticities from an Almost Ideal Demand System? Watch Out for Group Expenditure!," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1108-1116.
    6. Moschini, GianCarlo, 1995. "Units of Measurement and the 'Stone Index' In Demand System Estimation," Staff General Research Papers 5058, Iowa State University, Department of Economics.
    7. Duffy, Martyn, 2003. "Advertising and food, drink and tobacco consumption in the United Kingdom: a dynamic demand system," Agricultural Economics, Blackwell, vol. 28(1), pages 51-70, January.
    8. Adolf Buse, 1998. "Testing Homogeneity in the Linearized Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 208-220.
    9. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    10. Frank Asche & Cathy R. Wessells, 1997. "On Price Indices in the Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1182-1185.
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