The estimation of LES demand elasticities for CGE models

Mira Jussila, Saara Tamminen and Jouko Kinnunen

No 39, Working Papers from VATT Institute for Economic Research

Abstract: Computable general equilibrium (CGE) models require external parameters for proper estimations and can be relatively sensitive to the elasticity estimates used in them. We estimate LES demand elasticities and Frisch parameters for all Finnish household income deciles. These estimates will be used also inVATTAGE CGE model. We use three different methodologies for the estimation of demand elasticities: price index based approach, pseudo-panel dataset based regressions with exogenous Frisch parameters, and finally cross-section data based estimations with the Frisch parameters. Only the last methodology provides adequate results despite the use of detailed and extensive data. We conclude that the estimation of LES demand elasticities for narrow commodity groups is cumbersome with standard household consumption survey data. Typically these surveys account consumption only from a time period of a few weeks. The chance of consuming various durable consumption items during such a short time period is low. Use of longer survey periods could decrease the share of zero consumption observations and help on the identification of elasticities.

Keywords: demand elasticity; linear expenditure function; household consumption data; computable general equilibrium; Macroeconomic policy; Talouspolitiikka; Income distribution; Tulonjako; Policy analysis and modelling; Päätöksenteon tuki ja mallintaminen; C680 - Computable General Equilibrium Models; D120 - Consumer Economics: Empirical Analysis (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.doria.fi/handle/10024/148777

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fer:wpaper:39

Ordering information: This working paper can be ordered from
tietopalvelu@vatt.fi

Access Statistics for this paper

More papers in Working Papers from VATT Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Anita Niskanen (tietopalvelu@vatt.fi).