Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up?

William Barnett and Isaac Kanyama

Applied Economics, 2013, vol. 45, issue 29, 4169-4183

Abstract: This article assesses the ability of the Rotterdam Model (RM) and of three versions of the Almost Ideal Demand System (AIDS) to recover the time-varying elasticities of a true demand system and to satisfy theoretical regularity. Using Monte Carlo simulations, we find that the RM performs better than the linear-approximate AIDS at recovering the signs of all the time-varying elasticities. More importantly, the RM has the ability to track the paths of time-varying income elasticities, even when the true values are very high. The linear-approximate AIDS, not only performs poorly at recovering the time-varying elasticities but also badly approximates the nonlinear AIDS.

Date: 2013
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Time-Varying Parameters in the Almost Ideal Demand System and the Rotterdam Model: Will the Best Specication Please Stand Up? (2012)
Working Paper: Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up? (2012)
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DOI: 10.1080/00036846.2013.768014

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