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Estimating the Markov-switching almost ideal demand systems: a Bayesian approach

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  • Satoshi Kabe
  • Yuichiro Kanazawa

Abstract

Allias and Nichèle (Eur Rev Agric Econ, 34(4):517–538, 2007 ) proposed a Markov-switching almost ideal demand system (MS-AIDS) model by extending the idea of Hamilton (Econometrica, 57(2):357–384, 1989 ). In this paper, we propose a Bayesian estimation for MS-AIDS model and illustrate applicability of our proposed method. We then run two sets of simulation studies to confirm the validity of the proposed method. In the empirical study on the Japanese meat market, our Bayesian estimation improves the MSEs for all meat products over the ML estimation, while successfully capturing the regime shifts of meat demand coinciding with the timing of bovine spongiform encephalopathy cases in Japan and US. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Satoshi Kabe & Yuichiro Kanazawa, 2014. "Estimating the Markov-switching almost ideal demand systems: a Bayesian approach," Empirical Economics, Springer, vol. 47(4), pages 1193-1220, December.
    • Handle: RePEc:spr:empeco:v:47:y:2014:i:4:p:1193-1220
    DOI: 10.1007/s00181-013-0777-3
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    Cited by:

    1. Sanvi Avouyi-Dovi & Christian Pfister & Franck Sédillot, 2019. "French Households’ Portfolio: The Financial Almost Ideal Demand System Appraisal," Working papers 728, Banque de France.

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    More about this item

    Keywords

    Bayesian estimation; Markov-switching; Almost ideal demand system; Japanese meat market; C11; C51; D12; Q11;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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