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Rotterdam model versus almost ideal demand system: will the best specification please stand up?

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Author Info

  • William A. Barnett

    (Department of Economics, University of Kansas, Lawrence, Kansas, USA)

  • Ousmane Seck

    (California State University at Fullerton, Fullerton, California, USA)

Abstract

The Rotterdam model and the Almost Ideal Demand System (AIDS) are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we determine which model performs best in recovering the true elasticities of demand. The AIDS model is usually used in linearized form. Since the Rotterdam model is also linear in a very similar form, comparison of the Rotterdam model and the AIDS model has been the subject of much speculation in the literature. We not only compare the linearized AIDS model with the Rotterdam model, but also with the full nonlinear AIDS. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1009
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File URL: http://qed.econ.queensu.ca:80/jae/2008-v23.6/
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 23 (2008)
Issue (Month): 6 ()
Pages: 795-824

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Handle: RePEc:jae:japmet:v:23:y:2008:i:6:p:795-824

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References

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  1. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2001. "An empirical comparison of flexible demand system functional forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(1), pages 59-80.
  2. Barnett, William A & Choi, Seungmook, 1989. "A Monte Carlo Study of Tests of Blockwise Weak Separability," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 363-77, July.
  3. Barnett, William A. & Lee, Yul W. & Wolfe, Michael D., 1985. "The three-dimensional global properties of the minflex laurent, generalized leontief, and translog flexible functional forms," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 3-31.
  4. M. Denny, 1974. "The Relationship Between Functional Forms for the Production System," Canadian Journal of Economics, Canadian Economics Association, vol. 7(1), pages 21-31, February.
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  7. 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.
  8. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September.
  9. Barnett, William A., 1985. "The minflex-laurent translog flexible functional form," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 33-44.
  10. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 109-30, January.
  11. Guilkey, David K & Lovell, C A Knox & Sickles, Robin C, 1983. "A Comparison of the Performance of Three Flexible Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 591-616, October.
  12. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
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  16. Guilkey, David K & Lovell, C A Knox, 1980. "On the Flexibility of the Translog Approximation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 137-47, February.
  17. Barnett, William A. & Lee, Yul W. & Wolfe, Michael, 1987. "The global properties of the two minflex Laurent flexible functional forms," Journal of Econometrics, Elsevier, vol. 36(3), pages 281-298, November.
  18. William A. Barnett, 1976. "Recursive subaggregation and a generalized hypocycloidal demand model," Special Studies Papers 84, Board of Governors of the Federal Reserve System (U.S.).
  19. Berndt, Ernst R & Darrough, Masako N & Diewert, W E, 1977. "Flexible Functional Forms and Expenditure Distributions: An Application to Canadian Consumer Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 651-75, October.
  20. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  21. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-83, June.
  22. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  23. 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.
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Citations

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Cited by:
  1. Jason Loughrey & Cathal O’Donoghue, 2012. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 31–66.
  2. William A. Barnett and Isaac Kalonda-Kanyama, 2013. "Time-Varying Parameter in the Almost Ideal Demand System and the Rotterdam Model: Will the Best Specification Please Stand Up?," Working Papers 335, Economic Research Southern Africa.
  3. Silva, Andres & Garcia, Marian & Bailey, Alastair, 2012. "The Impact of Child Obesity News on Household Food Expenditure in the United Kingdom," 2012 AAEA/EAAE Food Environment Symposium, May 30-31, Boston, MA 123526, Agricultural and Applied Economics Association.
  4. William Barnett & Apostolos Serletis, 2009. "Measuring Consumer Preferences and Estimating Demand Systems," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200901, University of Kansas, Department of Economics, revised Jan 2009.
  5. Barnett, William A. & Serletis, Apostolos, 2008. "The Differential Approach to Demand Analysis and the Rotterdam Model," MPRA Paper 12319, University Library of Munich, Germany.
  6. Wang, Xiaojin & Reed, Michael, 2013. "Estimation of Import Demand for Fishery Products in the U.S. Using the Source-Differentiated AIDS Model," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150207, Agricultural and Applied Economics Association.
  7. William Barnett & Apostolos Serletis, 2008. "Consumer preferences and demand systems," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200801, University of Kansas, Department of Economics, revised Jan 2008.
  8. William Barnett & Isaac Kalonda-Kanyama, 2012. "Time-Varying Parameters in the Almost Ideal Demand System and the Rotterdam Model: Will the Best Specication Please Stand Up?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201201, University of Kansas, Department of Economics, revised Feb 2012.

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