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Interest Rates and Durability in the Linear Expenditure Family

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  • Gordon Fisher
  • Michael McAleer
  • Diana Whistler

Abstract

This paper demonstrates that the extended linear expenditure system with durables (DELES) satisfies first-order conditions for local unidentifiability, and discuss alternative methods that might be used to achieve identifiability, as well as their implications. Estimates are presented using seasonally adjusted, quarterly Australian data from 1959Q4 to 1976Q2. This exercise compares the effects of allowing for first-order autocorrelation. We fix the decay rate for durables to secure identifiability, however, the estimates of the remaining parameters are insensitive to the value chosen. This suggests a major difficulty in interpreting DELES and leads us to reconsider its limiting properties.

Suggested Citation

  • Gordon Fisher & Michael McAleer & Diana Whistler, 1980. "Interest Rates and Durability in the Linear Expenditure Family," Working Paper 399, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:399
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    1. is not listed on IDEAS
    2. Chambers, Marcus J, 1992. "Estimation of a Continuous-Time Dynamic Demand System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(1), pages 53-64, Jan.-Marc.

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