The Effect of Expenditure Aggregation on Hypothesis Tests in Consumer Demand Systems

Christopher J Nicol

International Economic Review, 1991, vol. 32, issue 2, 405-16

Abstract: In this paper, cluster analysis is used to identify "stochastic Hicksian aggregates." Such aggregates comprise goods for which relative prices are constant, up to a random element. The need to identify such aggregates arises since inappropriate aggregation of expenditures influences the outcome of hypothesis tests. Furthermore, cluster analysis appears to identify goods which can be treated as stochastic Hicksian aggregates. It would, thus, appear that these methods should be used to identify the appropriate goods to aggregate, prior to the estimation or testing of demand models. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1991
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