Effective global regularity and empirical modeling of direct, inverse and mixed demand systems

Keith Robert McLaren () and K.K. Gary Wong

No 2/07, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: In this paper, we utilize the notion of "effective global regularity" and the intuition stemming from Cooper and McLaren (1996)'s General Exponential Form to develop a family of "composite" (product and ratio) direct, inverse and mixed demand systems. Apart from having larger regularity regions, the resulting specifications are also of potentially arbitrary rank, which can better approximate non-linear Engel curves. We also make extensive use of duality theory and a numerical inversion estimation method to rectify the endogeneity problem encountered in the estimation of the mixed demand systems. We illustrate the techniques by estimating different types of demand systems for Japanese quarterly meat and fish consumption. Results generally indicate that the proposed methods are promising, and may prove beneficial for modeling systems of direct, inverse and mixed demand functions in the future.

Keywords: Effective Global Regularity; Mixed Demands; Conditional Indirect Utility Functions; Numerical Inversion Estimation Method (search for similar items in EconPapers)
JEL-codes: D11 D12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-upt
Date: Written 2007-05

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