IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpem/0512011.html
   My bibliography  Save this paper

Estimating a third-order translog demand system using Canadian micro-data

Author

Listed:
  • Vik Singh

    (University of Regina)

Abstract

This paper presents a flexible functional form called third-order translog, which includes higher-order terms, to estimate systems of budget-share equations using Canadian crosssectional micro-data. We test the statistical significance of the third-order terms, and also test regularity conditions such as homogeneity and symmetry restrictions of the budgetshare systems. It is important to test these restrictions, since their rejection might imply that our data does not support the theory of utility maximization or the particular functional form used in the model is flawed. We find that the third-order terms are statistically significant which means that they are important determinant of consumer demand. But we reject the regularity conditions for most of the demographic groups. We also find that our model suffers from heteroscedastic errors and repeat the tests using “Heteroscedastic Consistent Covariance Matrix Estimator (HCCME).” The third-order terms are once again found to be significant but the regularity conditions fail to hold for all the demographic groups. The rejection of regularity conditions indicate a need for proper aggregation restrictions and determining the “neighborhood” of the observation space where the regularity conditions can hold.

Suggested Citation

  • Vik Singh, 2005. "Estimating a third-order translog demand system using Canadian micro-data," Econometrics 0512011, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpem:0512011
    Note: Type of Document - pdf; pages: 17
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/em/papers/0512/0512011.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Strauss, John, 1982. "Determinants of food consumption in rural Sierra Leone : Application of the quadratic expenditure system to the consumption-leisure component of a household-firm model," Journal of Development Economics, Elsevier, vol. 11(3), pages 327-353, December.
    2. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    3. Barnes, Roberta & Gillingham, Robert, 1984. "Demographic Effects in Demand Analysis: Estimation of the Quadratic Expenditure System Using Microdata," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 591-601, November.
    4. Parks, Richard W, 1969. "Systems of Demand Equations: An Empirical Comparison of Alternative Functional Forms," Econometrica, Econometric Society, vol. 37(4), pages 629-650, October.
    5. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
    6. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-383, June.
    7. Berndt, Ernst R & Darrough, Masako N & Diewert, W E, 1977. "Flexible Functional Forms and Expenditure Distributions: An Application to Canadian Consumer Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 651-675, October.
    8. Christopher J. Nicol, 1991. "Aggregate Consumer Behaviour without Exact Aggregation," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 578-594, August.
    9. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839 Elsevier.
    10. Simmons, Peter & Weiserbs, Daniel, 1979. "Translog Flexible Functional Forms and Associated Demand Systems," American Economic Review, American Economic Association, vol. 69(5), pages 892-901, December.
    11. Hayes, Kathy J, 1986. "Third-Order Translog Utility Functions," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(3), pages 339-346, July.
    12. Pollak, Robert A & Wales, Terence J, 1978. "Estimation of Complete Demand Systems from Household Budget Data: The Linear and Quadratic Expenditure Systems," American Economic Review, American Economic Association, vol. 68(3), pages 348-359, June.
    13. Nicol, C J, 1987. "The Implications of a Third-Order Translog Demand System and Some Empirical Results," Empirical Economics, Springer, vol. 12(3), pages 197-202.
    14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    15. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    16. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
    17. Brown, Alan & Deaton, Angus S, 1972. "Surveys in Applied Economics: Models of Consumer Behaviour," Economic Journal, Royal Economic Society, vol. 82(328), pages 1145-1236, December.
    18. Nicol, Christopher J., 1993. "Testing exact aggregation in income and household characteristics: the effects of aggregation across goods," Ricerche Economiche, Elsevier, vol. 47(4), pages 385-406, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Demand; Translog; Heteroscedasticity; Symmetry; Homogeneity.;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0512011. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.