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The Role of Heterogeneous Demand for Temporal and Structural Aggregation Bias

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    Differences in estimated parameters depending on the frequency of aggregate data have been reported in several fields of economic research. Some differences are due to seasonal variations in demand, but temporal aggregation bias is reported even in seasonally adjusted models. These biases have been explained by time-nonseparable preferences and excluded dynamic components. We show that it is possible to observe temporal aggregation bias in a seasonally adjusted static model even when preferences are time-separable. This is because of changes in the distribution of exogenous factors describing the variation in seasonal demand across consumers. To show this, we develop a method for aggregation based on an Almost Ideal Demand System, where demand response varies across both consumers and time

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp537.pdf
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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 537.

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    Date of creation: Apr 2008
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    Handle: RePEc:ssb:dispap:537
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    1. Stoker, Thomas M, 1993. "Empirical Approaches to the Problem of Aggregation Over Individuals," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1827-74, December.
    2. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
    3. Imbs, Jean & Mumtaz, Haroon & Ravn, Morten O & Rey, Hélène, 2003. "PPP Strikes Back: Aggregation and the Real Exchange Rate," CEPR Discussion Papers 3715, C.E.P.R. Discussion Papers.
    4. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
    5. Frank Denton & Dean Mountain, 2004. "Aggregation effects on price and expenditure elasticities in a quadratic almost ideal demand system," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 613-628, August.
    6. Bente Halvorsen & Bodil M. Larsen, 2006. "Aggregation with price variation and heterogeneity across consumers," Discussion Papers 489, Research Department of Statistics Norway.
    7. Buse, Adolf, 1992. "Aggregation, Distribution and Dynamics in the Linear and Quadratic Expenditure Systems," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 45-53, February.
    8. Bergstrom, A.R., 1984. "Continuous time stochastic models and issues of aggregation over time," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 20, pages 1145-1212 Elsevier.
    9. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    10. Marcellino, Massimiliano, 1999. "Some Consequences of Temporal Aggregation in Empirical Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 129-36, January.
    11. Denton, Frank T. & Mountain, Dean C., 2001. "Income distribution and aggregation/disaggregation biases in the measurement of consumer demand elasticities," Economics Letters, Elsevier, vol. 73(1), pages 21-28, October.
    12. Stoker, Thomas M, 1986. "Simple Tests of Distributional Effects on Macroeconomic Equations," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 763-95, August.
    13. Bente Halvorsen, 2006. "When can micro properties be used to predict aggregate demand?," Discussion Papers 452, Research Department of Statistics Norway.
    14. Dale Heien, 2001. "Habit, seasonality, and time aggregation in consumer behaviour," Applied Economics, Taylor & Francis Journals, vol. 33(13), pages 1649-1653.
    15. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
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