The matrix approach to evaluating demand equations

Kenneth Clements, Wana Yang and Dongling Chen

Applied Economics, 2001, vol. 33, issue 8, 957-967

Abstract: As there is a plethora of demand models, which one should be used to estimate income and price elasticities? The paper sheds light on this important practical problem by developing a matrix approach to simulating (MAS) demand equations to analyse their performance under idealized circumstances. Artificial data on the dependent variable are generated by one model, and these are then used for the estimation of another model. As an illustrative application, using four popular models, a 4 × 4 matrix is generated which gives all pair-wise comparisons. The performance of the models is then evaluated on the basis of the quality of the income and own-price elasticity estimates.

Date: 2001
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Working Paper: The Matrix Approach to Evaluating Demand Equations (1998)
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DOI: 10.1080/00036840122972

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