Time-varying intercepts and equilibrium analysis: an extension of the dynamic almost ideal demand model

Philippe Deschamps

Journal of Applied Econometrics, 2003, vol. 18, issue 2, 209-236

Abstract: Demographic effects and user costs in demand systems have usually been modelled explicitly. A more robust approach is a state space formulation of the demand system, where time-varying intercepts account for the effects of unobservable variables. The author embeds such a system in a vector autoregressive distributed lag model, with a Bayesian hierarchical prior. The model is estimated by a Markov chain Monte Carlo method on samples involving quarterly US and UK data. In the US case, the results are compared with a previously published cointegration analysis of the same data. Copyright © 2002 John Wiley & Sons, Ltd.

Date: 2003
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DOI: 10.1002/jae.674

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