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Testing Symmetry and Homogeneity in the Almost Ideal Demand System with Co-integrated Data using Fully Modified Estimation and the Bootstrap

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  • Richard Tiffin
  • Kelvin Balcombe

Abstract

Conventional seemingly unrelated estimation of the almost ideal demand system is shown to lead to small sample bias and distortions in the size of a Wald test for symmetry and homogeneity when the data are co-integrated. A fully modified estimator is developed in an attempt to remedy these problems. It is shown that this estimator reduces the small sample bias but fails to eliminate the size distortion. Bootstrapping is shown to be ineffective as a method of removing small sample bias in both the conventional and fully modified estimators. Bootstrapping is effective, however, as a method of removing size distortion and performs equally well in this respect with both estimators. Copyright 2005 Blackwell Publishing Ltd.

Suggested Citation

  • Richard Tiffin & Kelvin Balcombe, 2005. "Testing Symmetry and Homogeneity in the Almost Ideal Demand System with Co-integrated Data using Fully Modified Estimation and the Bootstrap," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(2), pages 253-270.
  • Handle: RePEc:bla:jageco:v:56:y:2005:i:2:p:253-270
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    1. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    2. M. Hashem Pesaran & Yongcheol Shin, 2002. "Long-Run Structural Modelling," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 49-87.
    3. Blanciforti, Laura Ann & Green, Richard D. & King, Gordon A., 1986. "U.S. Consumer Behavior over the Postwar Period: An Almost Ideal Demand System Analysis," Monographs, University of California, Davis, Giannini Foundation, number 11939.
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