Estimating the Markov-switching almost ideal demand systems: a Bayesian approach

Satoshi Kabe () and Yuichiro Kanazawa ()

Empirical Economics, 2014, vol. 47, issue 4, 1193-1220

Abstract: Allias and Nichèle (Eur Rev Agric Econ, 34(4):517–538, 2007 ) proposed a Markov-switching almost ideal demand system (MS-AIDS) model by extending the idea of Hamilton (Econometrica, 57(2):357–384, 1989 ). In this paper, we propose a Bayesian estimation for MS-AIDS model and illustrate applicability of our proposed method. We then run two sets of simulation studies to confirm the validity of the proposed method. In the empirical study on the Japanese meat market, our Bayesian estimation improves the MSEs for all meat products over the ML estimation, while successfully capturing the regime shifts of meat demand coinciding with the timing of bovine spongiform encephalopathy cases in Japan and US. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Bayesian estimation; Markov-switching; Almost ideal demand system; Japanese meat market; C11; C51; D12; Q11 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s00181-013-0777-3

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