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

Time-Varying Parameters in the Almost Ideal Demand System and the Rotterdam Model: Will the Best Specication Please Stand Up?

Contents:

Author Info

  • William Barnett

    (Department of Economics, The University of Kansas)

  • Isaac Kalonda-Kanyama

    (Department of Economics, The University of Kansas)

Abstract

This paper assesses the ability of the Rotterdam model and of three versions of the almost ideal demand system (AIDS) to recover the time-varying elasticities of a true demand system and to satisfy theoretical regularity. Using Monte Carlo simulations, we find that the Rotterdam model performs better than the linear-approximate AIDs at recovering the signs of all the time-varying elasticities. More importantly, the Rotterdam model has the ability to track the paths of time-varying income elasticities, even when the true values are very high. The linear-approximate AIDS, not only performs poorly at recovering the time-varying elasticities but also badly approximates the nonlinear AIDS.

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://www2.ku.edu/~kuwpaper/2009Papers/201201.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201201.

as in new window
Length: 32 pages
Date of creation: Feb 2012
Date of revision: Feb 2012
Handle: RePEc:kan:wpaper:201201

Contact details of provider:
Postal: 415 Snow Hall, Lawrence, KS 66045
Phone: (785) 864-3501
Fax: (785) 864-5270
Email:
Web page: http://www2.ku.edu/~kuwpaper/
More information through EDIRC

Related research

Keywords: AIDS; Rotterdam model; structural time series models; Monte Carlo experiment; theoretical regularity.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

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. 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. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 312-26, June.
  3. Brown, Mark G. & Lee, Jonq-Ying, 2002. "Restrictions On The Effects Of Preference Variables In The Rotterdam Model," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 34(01), April.
  4. 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.
  5. Kapteyn, A.J. & Geer, S. van de & Stadt, H. van de & Wansbeek, T., 1984. "Interdependent preferences: An econometric analysis," Research Memorandum, Tilburg University, Faculty of Economics and Business Administration 140, Tilburg University, Faculty of Economics and Business Administration.
  6. 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.).
  7. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 46(1), pages 109-30, January.
  8. Karni, Edi & Schmeidler, David, 1990. "Fixed Preferences and Changing Tastes," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 262-67, May.
  9. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, Econometric Society, vol. 45(1), pages 23-51, January.
  10. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521296762.
  11. Thomas Doan, . "State Space Methods in RATS," Journal of Statistical Software, American Statistical Association, American Statistical Association, vol. 41(i09).
  12. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  13. Barten, Anton P, 1993. "Consumer Allocation Models: Choice of Functional Form," Empirical Economics, Springer, Springer, vol. 18(1), pages 129-58.
  14. Basmann, Robert L., 1985. "A Theory of Serial Correlation of Stochastic Taste Changers in Direct Utility Functions," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 1(02), pages 192-210, August.
  15. Moschini, GianCarlo & Meilke, Karl D., 1989. "Modeling the Pattern of Structural Change in U.S. Meat Demand," Staff General Research Papers 11266, Iowa State University, Department of Economics.
  16. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, American Economic Association, vol. 65(3), pages 367-83, June.
  17. 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, American Economic Association, vol. 79(4), pages 882-88, September.
  18. Mario Mazzocchi, 2003. "Time-varying coefficients in the Almost Ideal Demand System: an empirical appraisal," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(2), pages 241-270, June.
  19. Alston, Julian M. & Chalfant, James A., 1991. "Can We Take The Con Out Of Meat Demand Studies?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 16(01), July.
  20. Charles Blackorby & Daniel Primont & R. Russell, 2007. "The Morishima gross elasticity of substitution," Journal of Productivity Analysis, Springer, Springer, vol. 28(3), pages 203-208, December.
  21. Barnett, William A, 1979. "The Joint Allocation of Leisure and Goods Expenditure," Econometrica, Econometric Society, Econometric Society, vol. 47(3), pages 539-63, May.
  22. William A. Barnett & Ousmane Seck, 2008. "Rotterdam model versus almost ideal demand system: will the best specification please stand up?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 23(6), pages 795-824.
  23. Doran, Howard E. & Rambaldi, Alicia N., 1997. "Applying linear time-varying constraints to econometric models: With an application to demand systems," Journal of Econometrics, Elsevier, Elsevier, vol. 79(1), pages 83-95, July.
  24. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, Elsevier, vol. 1(1), pages 7-73.
  25. Pollak, Robert A, 1978. "Endogenous Tastes in Demand and Welfare Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 68(2), pages 374-79, May.
  26. Barnett, William A & Choi, Seungmook, 1989. "A Monte Carlo Study of Tests of Blockwise Weak Separability," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 7(3), pages 363-77, July.
Full references (including those not matched with items on IDEAS)

Citations

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:kan:wpaper:201201. 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: (Jianbo Zhang).

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.