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A linear demand system within a seemingly unrelated time series equations framework

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  • Arvid Raknerud
  • Terje Skjerpen

    ()

  • Anders Swensen

Abstract

We consider a Seemingly Unrelated Time Series Equations framework for the linear Almost Ideal Demand system. The framework is applied to a consumer demand system covering nine non-durable commodities. We test for demand homogeneity within a specification where the static linear Almost Ideal Demand system is augmented by three stochastic trends and three stochastic seasonal variables. The homogeneity restriction is rejected for about half of the commodities and in the system as a whole using conventional significance levels. However, when comparing the out-of-sample predictions from a homogeneous and non-homogeneous model, we do not find that the non-homogenous model performs better than the homogeneous one. Moreover, the income and price elasticities calculated under homogeneity restrictions are all of the right sign and have reasonable magnitudes.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 32 (2007)
Issue (Month): 1 (April)
Pages: 105-124

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Handle: RePEc:spr:empeco:v:32:y:2007:i:1:p:105-124

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Related research

Keywords: Consumer demand; Almost ideal demand system; Seemingly unrelated time series equations; Out-of-sample performance; C32; C51; C53; E21;

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References

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  1. Pesaran,H.M. & Shin,Y., 1995. "Long-Run Structural Modelling," Cambridge Working Papers in Economics 9419, Faculty of Economics, University of Cambridge.
  2. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November.
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  11. I. A. Moosa & J. L. Baxter, 2002. "Modelling the trend and seasonals within an AIDS model of the demand for alcoholic beverages in the United Kingdom," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(2), pages 95-106.
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Cited by:
  1. Håvard Hungnes, 2008. "A Demand System for Input Factors when there are Technological Changes in Production," Discussion Papers 556, Research Department of Statistics Norway.

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