A Simple Nested Test of the Almost Ideal Demand System

Keith McLaren, Jane Fry and Tim Fry

Empirical Economics, 1995, vol. 20, issue 1, 149-61

Abstract: The MPIGLOG specification of an indirect utility function gives rise to Cooper and McLaren's (1992) Modified Almost Ideal Demand System (MAIDS) specification, which nests the Almost Ideal Demand System. Following the "combined" approach outlined by Fry, Fry and McLaren (1993), we transform the deterministic equations to logratio form for estimation. This procedure not only restricts the shares implied by the model to the unit simplex, but also provides a transparent representation of the restriction implied by the Almost Ideal Demand System. We estimate MAIDS (with and without the Almost Ideal Demand System restriction imposed) using the "combined" approach and proceed to test the Almost Ideal Demand System restriction.

Date: 1995
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