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A linear demand system within a Seemingly Unrelated Time Series Equation framework

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  • Arvid Raknerud
  • Terje Skjerpen
  • Anders Rygh Swensen

    ()
    (Statistics Norway)

Abstract

We consider a Seemingly Unrelated Time Series Equations framework for the linear Almost Ideal Demand system. The framework is applied to a consumer demand system covering nine non-durable commodities. We test for demand homogeneity within a specification where the static linear Almost Ideal Demand system is augmented by three stochastic trends and three stochastic seasonal variables. The homogeneity restriction is rejected for about half of the commodities and in the system as a whole using conventional significance levels. However, when comparing the out-of-sample predictions from a homogeneous and non-homogeneous model, we do not find that the non-homogenous model performs better than the homogeneous one. Moreover, the income and price elasticities calculated under homogeneity restrictions are all of the right sign and have reasonable magnitudes.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 345.

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Date of creation: Mar 2003
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Handle: RePEc:ssb:dispap:345

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Keywords: Consumer demand. Linear Almost Ideal Demand system. Seemingly Unrelated Time Series Equations. Prediction.;

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  1. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November.
  2. Frank Asche & Cathy R. Wessells, 1997. "On Price Indices in the Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1182-1185.
  3. M Pesaran & Yongcheol Shin, 2004. "Long-Run Structural Modelling," ESE Discussion Papers 44, Edinburgh School of Economics, University of Edinburgh.
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  5. Chalfant, James A, 1987. "A Globally Flexible, Almost Ideal Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 233-42, April.
  6. I. A. Moosa & J. L. Baxter, 2002. "Modelling the trend and seasonals within an AIDS model of the demand for alcoholic beverages in the United Kingdom," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(2), pages 95-106.
  7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  8. Anderson, Gordon & Blundell, Richard, 1983. "Testing Restrictions in a Flexible Dynamic Demand System: An Application to Consumers' Expenditure in Canada," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 397-410, July.
  9. L. Fanelli & M. Mazzocchi, 2002. "A cointegrated VECM demand system for meat in Italy," Applied Economics, Taylor & Francis Journals, vol. 34(13), pages 1593-1605.
  10. Keuzenkamp, Hugo A. & Barten, Anton P., 1995. "Rejection without falsification on the history of testing the homogeneity condition in the theory of consumer demand," Journal of Econometrics, Elsevier, vol. 67(1), pages 103-127, May.
  11. Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
  12. Anderson, G. J., 1980. "The structure of simultaneous equations estimators : A comment," Journal of Econometrics, Elsevier, vol. 14(2), pages 271-276, October.
  13. Harvey, Andrew C & Koopman, Siem Jan, 1992. "Diagnostic Checking of Unobserved-Components Time Series Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 377-89, October.
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Cited by:
  1. Håvard Hungnes, 2008. "A Demand System for Input Factors when there are Technological Changes in Production," Discussion Papers 556, Research Department of Statistics Norway.

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