Advanced Search
MyIDEAS: Login to save this paper or follow this series

Simulated Maximum Likelihood Estimation of the Linear Expenditure System with Binding Non-Negativity Constraints

Contents:

Author Info

  • Chihwa Kao

    (Department of Economics and Center for Policy Research, Syracuse University)

  • Lung-fei Lee

    ()
    (Department of Economics, The Ohio State University)

  • Mark M. Pitt

    (Department of Economics, Brown University)

Abstract

This paper discusses issues on the estimation of consumer demand equations subject to binding non-negative constraints. We propose computationally feasible specifications and a simulated maximum likelihood (SML) method for demand systems. Our study shows that the econometric implementation of the SML estimates can avoid high-dimensional integration problems. As contrary to the simulation method of moments and simulated pseudo-likelihood methods that require the simulation of demand quantities subject to nonnegativity constraints for consumers in the sample, the SML approach requires only simulation of the likelihood function. The SML approach avoids solving for simulated demand quantities because the likelihood function is conditional on observed demand quantities. We have applied SML approach for the linear expenditure system (LES) with non-negativity constraints. The results of a seven-goods demand system are presented. The results provide empirical evidence on the importance of taking into account possible cross equation correlations in disturbances.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://down.aefweb.net/WorkingPapers/w50.pdf
Download Restriction: no

Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 50.

as in new window
Length: 21 pages
Date of creation: May 2000
Date of revision: Apr 2001
Publication status: Published in Annals of Economics and Finance, May 2001, pages 215-235
Handle: RePEc:cuf:wpaper:50

Contact details of provider:
Web page: http://cema.cufe.edu.cn/
More information through EDIRC

Related research

Keywords: Simulated likelihood; Linear expenditure system; Non-negativity constraints; Multivariate censored variables; Nonlinear simultaneous equations;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lee, Lung-Fei & Pitt, Mark M, 1986. "Microeconometric Demand Systems with Binding Nonnegativity Constraints: The Dual Approach," Econometrica, Econometric Society, vol. 54(5), pages 1237-42, September.
  2. Pollak, Robert A & Wales, Terrence J, 1969. "Estimation of the Linear Expenditure System," Econometrica, Econometric Society, vol. 37(4), pages 611-28, October.
  3. Lee, Lung-Fei & Pitt, Mark M., 1987. "Microeconometric models of rationing, imperfect markets, and non-negativity constraints," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 89-110.
  4. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
  5. repec:fth:inseep:9315 is not listed on IDEAS
  6. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers 464, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Andersen, Torben G., 2000. "Simulation-Based Econometric Methods," Econometric Theory, Cambridge University Press, vol. 16(01), pages 131-138, February.
  8. Van Soest, Arthur & Kooreman, Peter, 1990. "Coherency of the indirect translog demand system with binding nonnegativity constraints," Journal of Econometrics, Elsevier, vol. 44(3), pages 391-400, June.
  9. Vassilis A. Hajivassiliou & Axel Borsch-Supan, 1990. "Smooth Unbiased Multivariate Probability Simulators for Maximum Likelihood Estimation of Limited Dependent Variable Models," Cowles Foundation Discussion Papers 960, Cowles Foundation for Research in Economics, Yale University.
  10. Deaton, Angus, 1974. "A Reconsideration of the Empirical Implications of Additive Preferences," Economic Journal, Royal Economic Society, vol. 84(334), pages 338-48, June.
  11. Soest, Arthur van & Kapteyn, Arie & Kooreman, Peter, 1993. "Coherency and regularity of demand systems with equality and inequality constraints," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 161-188.
  12. Lee, Lung-Fei, 1995. "Asymptotic Bias in Simulated Maximum Likelihood Estimation of Discrete Choice Models," Econometric Theory, Cambridge University Press, vol. 11(03), pages 437-483, June.
  13. Diewert, W E & Wales, T J, 1988. "Normalized Quadratic Systems of Consumer Demand Functions," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 303-12, July.
  14. Laroque, Guy & Salanie, B, 1993. "Simulation-Based Estimation of Models with Lagged Latent Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S119-33, Suppl. De.
  15. J. A. Hausman & D. A. Wise, 1976. "A Conditional Profit Model for Qualitative Choice: Discrete Decisions Recognizing Interdependence and Heterogeneous Preferences," Working papers 173, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  17. Tripathi, Gautam, 2000. "Econometric Methods," Econometric Theory, Cambridge University Press, vol. 16(01), pages 139-142, February.
  18. Lee, Lung-Fei, 1992. "On Efficiency of Methods of Simulated Moments and Maximum Simulated Likelihood Estimation of Discrete Response Models," Econometric Theory, Cambridge University Press, vol. 8(04), pages 518-552, December.
  19. Jeongwen Chiang, 1995. "Competing Coupon Promotions and Category Sales," Marketing Science, INFORMS, vol. 14(1), pages 105-122.
  20. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  21. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  22. 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.
  23. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
  24. Gourieroux, C & Laffont, J-J & Monfort, A, 1980. "Disequilibrium Econometrics in Simultaneous Equations Systems," Econometrica, Econometric Society, vol. 48(1), pages 75-96, January.
  25. Jeongwen Chiang, 1991. "A Simultaneous Approach to the Whether, What and How Much to Buy Questions," Marketing Science, INFORMS, vol. 10(4), pages 297-315.
  26. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Prinz, Aloys & Bünger, Björn, 2012. "Balancing ‘full life’: An economic approach to the route to happiness," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 58-70.
  2. Qian, Hang, 2009. "Estimating SUR Tobit Model while errors are gaussian scale mixtures: with an application to high frequency financial data," MPRA Paper 31509, University Library of Munich, Germany.
  3. Raja Chakir & Alban Thomas, 2003. "Simulated maximum likelihood estimation of demand systems with corner solutions and panel data application to industrial energy demand," Revue d'économie politique, Dalloz, vol. 0(6), pages 773-799.
  4. Solon, Gary, 2010. "A simple microeconomic foundation for a Tobit model of consumer demand," Economics Letters, Elsevier, vol. 106(2), pages 131-132, February.
  5. Pofahl, Geoffrey M. & Capps, Oral, Jr. & Clauson, Annette L., 2005. "Demand for Non-Alcoholic Beverages: Evidence From The ACNielsen Home Scan Panel," 2005 Annual meeting, July 24-27, Providence, RI 19441, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Cassioli, A. & Di Lorenzo, D. & Sciandrone, M., 2013. "On the convergence of inexact block coordinate descent methods for constrained optimization," European Journal of Operational Research, Elsevier, vol. 231(2), pages 274-281.
  7. Millimet, Daniel L. & Tchernis, Rusty, 2008. "Estimating high-dimensional demand systems in the presence of many binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 147(2), pages 384-395, December.
  8. Cristian Ricardo Nogales Carvajal, 2009. "Un sistema lineal de gasto: identificando patrones de consumo de alimentos en Bolivia," Investigación & Desarrollo 0109, Universidad Privada Boliviana, revised Jan 2009.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cuf:wpaper:50. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.