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Money Illusion, Gorman And Lau

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  • Scott J. Colby
  • Timothy A. Graciano
  • Jeffrey T. LaFrance
  • Rulon D. Pope

Abstract

Any demand equation satisfying Lau’s (1982) Fundamental Theorem of Exact Aggregation and 0° homogeneity in prices and income will have a Gorman (1981) functional form for each income term. This property does not depend on symmetry or adding up. The implications of this result are illustrated by an extensive example.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/3011moneyillusionlafrance.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 30-11.

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Length: 12 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-30

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Keywords: Demand; exact aggregation; functional form; homogeneity;

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  1. Howe, Howard & Pollak, Robert A & Wales, Terence J, 1979. "Theory and Time Series Estimation of the Quadratic Expenditure System," Econometrica, Econometric Society, vol. 47(5), pages 1231-47, September.
  2. Lau, Lawrence J., 1982. "A note on the fundamental theorem of exact aggregation," Economics Letters, Elsevier, vol. 9(2), pages 119-126.
  3. Lewbel, Arthur, 1990. "Full Rank Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 289-300, May.
  4. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
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