Modelling the trend and seasonals within an AIDS model of the demand for alcoholic beverages in the United Kingdom

I. A. Moosa and J. L. Baxter
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I. A. Moosa: La Trobe University, Victoria, Australia, Postal: La Trobe University, Victoria, Australia
J. L. Baxter: University of Sheffield, Sheffield S1 4DT, UK, Postal: University of Sheffield, Sheffield S1 4DT, UK

Journal of Applied Econometrics, 2002, vol. 17, issue 2, 95-106

Abstract: The argument that is put forward in this paper is that failure to represent stochastic trend and stochastic seasonality in an AIDS model leads to a misspecified and possibly structurally unstable model. This proposition is verified by estimating an AIDS model of the demand for alcoholic beverages in the United Kingdom. Three versions of the model are estimated, and it is demonstrated that the version allowing for stochastic trend and stochastic seasonality performs better than the other two versions of the model in terms of the diagnostics tests and goodness of fit measures. The best estimated model turns out to possess the properties of having common components and being homogenous. Further empirical testing reveals the presence of stochastic trends and cointegration between the budget shares of beer and wine. The results clearly indicate that there has been a shift away from the consumption of beer towards wine. Copyright © 2002 John Wiley & Sons, Ltd.

Date: 2002
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