Time-varying coefficients in the Almost Ideal Demand System: an empirical appraisal
This paper provides a generalisation of the structural time series version of the Almost Ideal Demand System (AIDS) that allows for time-varying coefficients (TVC-AIDS) in the presence of cross-equation constraints. An empirical appraisal of the TVC-AIDS is made using a dynamic AIDS with trending intercept as the baseline model with a data set from the Italian Household Budget Survey (1986--2001). The assessment is based on four criteria: adherence to theoretical constraints, statistical diagnostics on residuals, forecasting performance and economic meaningfulness. No clear evidence is found for superior performance of the TVC-AIDS, apart from improved short-term forecasts. Copyright 2003, Oxford University Press.
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Volume (Year): 30 (2003)
Issue (Month): 2 (June)
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