Does the Stochastic Specification of the Linear Expenditure System Matter?

Prof. Denis Conniffe and John Eakins ()
Additional contact information
Prof. Denis Conniffe and John Eakins: Economic and Social Research Institute (ESRI), http://www.esri.ie/
Authors registered in the RePEc Author Service: John Eakins

No 8, NIRSA Working Paper Series from National Institute for Regional and Spatial Analysis (NIRSA), NUI Maynooth, Ireland.

Abstract: When 'income' in a system of demand equations is defined as total expenditure, actual expenditure on any commodity must lie between zero and income, or equivalently, budget shares must lie between zero and one. But models for expenditures or shares are often the sum of deterministic components (predicted values), which are functions of prices and income, and disturbances, usually assumed multivariate normal. The predicted values ought to satisfy the same bounds as the dependent variables and will do so if the demand system is 'regular'. But even then, the situation is theoretically inconsistent with unbounded disturbances and it has been proposed (Fry, et al, 1996) that analysis be appropriately modified. In assessing how much practical difference this makes, the linear expenditure system (LES) is, for reasons described in the paper, the crucial case. We compare estimation methods for the LES, using Irish data from 1979-99 on some broadly defined commodities, and find that the differences are not of practical concern.

Pages: 14 pages
Date: 2002-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nuim.ie/nirsa/publications/WPS08.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.nuim.ie/nirsa/publications/WPS08.pdf [301 Moved Permanently]--> https://www.nuim.ie/nirsa/publications/WPS08.pdf [302 Moved Temporarily]--> https://www.maynoothuniversity.ie/nirsa/publications/WPS08.pdf)

Related works:
Journal Article: Does the Stochastic Specification of the Linear Expenditure System Matter? (2003)
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:nir:nirwps:wps08

Access Statistics for this paper

More papers in NIRSA Working Paper Series from National Institute for Regional and Spatial Analysis (NIRSA), NUI Maynooth, Ireland. NIRSA, NUI Maynooth, Maynooth, Co. Kildare. Ireland. Contact information at EDIRC.
Bibliographic data for series maintained by Mary O'Brien ( this e-mail address is bad, please contact ).