Generalized Rational Random Errors
Theil's theory of rational random errors is sufficient for strict exogeneity of group expenditure in separable demand models. Generalized rational random errors is necessary and sufficient for strict exogeneity of group expenditure. A simple, robust, asymptotically normal t-test of this hypothesis is derived based on the generalized method of moments. An application to per capita annual U.S. food demand in the 20th century strongly rejects exogeneity of food expenditure in a model that in all other respects is highly compatible with the data set and with the implications of economic theory.
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- Theil, Henri, 1971. "An Economic Theory of the Second Moments of Disturbances of Behavioral Equations," American Economic Review, American Economic Association, vol. 61(1), pages 190-194, March.
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"The Dual Structure of Incomplete Demand Systems,"
Monash Economics Working Papers
archive-21, Monash University, Department of Economics.
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- Brown, Bryan W & Walker, Mary Beth, 1989. "The Random Utility Hypothesis and Inference in Demand Systems," Econometrica, Econometric Society, vol. 57(4), pages 815-829, July.
- Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, vol. 60(2), pages 271-285, March.
- Edgerton, David L., 1993. "On The Estimation Of Separable Demand Models," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
- Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-1551, November.
- Theil, Henri, 1975. "The theory of rational random behavior and its application to demand analysis," European Economic Review, Elsevier, vol. 6(3), pages 217-226, July.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
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