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Rotterdam vs Almost Ideal Models: Will the Best Demand Specification Please Stand Up?

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Author Info
Barnett, William A.
Seck, Ousmane

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Abstract

Among the many demand specifications in the literature, the Rotterdam model and the Almost Ideal Demand System (AIDS) have particularly long histories, have been highly developed, and are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we seek to determine which model performs better in terms of its ability to recover the true elasticities of demand. We derive the correct formulae for the AIDS models elasticities, when the Törnqvist or two modified versions of the Stone index are used to linearize the model. The resulting linearized AIDS are compared to the full AIDS.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 417.

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Date of creation: 06 Feb 2006
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Handle: RePEc:pra:mprapa:417

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Related research
Keywords: Rotterdam Model; Almost Ideal Model; consumer demand system; Monte Carlo study; flexible functional forms;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation

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