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A linear demand system within a seemingly unrelated time series equations framework

Author Info

Listed author(s):
  • Arvid Raknerud
  • Terje Skjerpen

    ()

  • Anders Swensen

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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File URL: http://hdl.handle.net/10.1007/s00181-006-0074-5
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 32 (2007)
Issue (Month): 1 (April)
Pages: 105-124

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Handle: RePEc:spr:empeco:v:32:y:2007:i:1:p:105-124
DOI: 10.1007/s00181-006-0074-5
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/econometrics/journal/181/PS2

Keywords: Consumer demand; Almost ideal demand system; Seemingly unrelated time series equations; Out-of-sample performance; C32; C51; C53; E21;

Other versions of this item:

Find related papers by JEL classification:
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
  • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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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 1559-1571, November.
  2. Chalfant, James A, 1987. "A Globally Flexible, Almost Ideal Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 233-242, April.
  3. 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.
  4. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
  5. 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.
  6. Gordon Anderson & Richard Blundell, 1983. "Testing Restrictions in a Flexible Dynamic Demand System: An Application to Consumers' Expenditure in Canada," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 397-410.
  7. 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.
  8. M. Hashem Pesaran & Yongcheol Shin, 2002. "Long-Run Structural Modelling," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 49-87.
  9. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
  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. Anderson, G. J., 1980. "The structure of simultaneous equations estimators : A comment," Journal of Econometrics, Elsevier, vol. 14(2), pages 271-276, October.
  12. 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 377-389, October.
  13. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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Cited by:

  1. Håvard Hungnes, 2011. "A demand system for input factors when there are technological changes in production," Empirical Economics, Springer, vol. 40(3), pages 581-600, May.
  2. Kawata, Yukichika, 2012. "Fishery resource recovery strategy without reducing the number of landings: A case study of the ocellate puffer in Japan," Ecological Economics, Elsevier, vol. 77(C), pages 225-233.

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