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The examination of the validity of the Divisia price index for the almost ideal demand system model: Some Monte Carlo results

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  • Manami Ogura

    () (Graduate School of Economics, Kobe University)

Abstract

In this paper, we have investigated about the validity of an exact price index suggested by Feenstra and Reindorf (2000) in the almost ideal demand (AID) system model. This index can express by the use of the Divisia index with the weighted shares, and it has been evaluated using data on the expenditure shares and prices at two data points. Our Monte Carlo experiments show that the Divisia index does not perform so suitable estimates in any design. And then we find that the Divisia index would yield the poor estimates against the AID price index.

Suggested Citation

  • Manami Ogura, 2008. "The examination of the validity of the Divisia price index for the almost ideal demand system model: Some Monte Carlo results," Economics Bulletin, AccessEcon, vol. 3(14), pages 1-10.
  • Handle: RePEc:ebl:ecbull:eb-07c50005
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    References listed on IDEAS

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    1. Giancarlo Moschini, 1995. "Units of Measurement and the Stone Index in Demand System Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 63-68.
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    3. Chen, Kevin Z., 1998. "The symmetric problem in the linear almost ideal demand system," Economics Letters, Elsevier, vol. 59(3), pages 309-315, June.
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    5. Adolf Buse, 1994. "Evaluating the Linearized Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 781-793.
    6. Wyatt Thompson, 2004. "Using Elasticities from an Almost Ideal Demand System? Watch Out for Group Expenditure!," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1108-1116.
    7. Pashardes, Panos, 1993. "Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation," Economic Journal, Royal Economic Society, vol. 103(419), pages 908-915, July.
    8. 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.
    9. Adolf Buse, 1998. "Testing Homogeneity in the Linearized Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 208-220.
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    More about this item

    Keywords

    Demand system AID model Divisia price index;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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