Time-varying coefficients in the Almost Ideal Demand System: an empirical appraisal

Mario Mazzocchi

European Review of Agricultural Economics, 2003, vol. 30, issue 2, 241-270

Abstract: This paper provides a generalisation of the structural time series version of the Almost Ideal Demand System (AIDS) that allows for time-varying coefficients (TVC-AIDS) in the presence of cross-equation constraints. An empirical appraisal of the TVC-AIDS is made using a dynamic AIDS with trending intercept as the baseline model with a data set from the Italian Household Budget Survey (1986--2001). The assessment is based on four criteria: adherence to theoretical constraints, statistical diagnostics on residuals, forecasting performance and economic meaningfulness. No clear evidence is found for superior performance of the TVC-AIDS, apart from improved short-term forecasts. Copyright 2003, Oxford University Press.

Date: 2003
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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