EconPapers    
Economics at your fingertips  
 

Demand Systems With Nonstationary Prices

Arthur Lewbel () and Serena Ng ()

No 441, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Relative prices are nonstationary and standard root-T inference is invalid for demand systems. But demand systems are nonlinear functions of relative prices, and standard methods for dealing with nonstationarity in linear models cannot be used. Demand system residuals are also frequently found to be highly persistent, further complicating estimation and inference. We propose a variant of the Translog demand system, the NTLOG, and an associated estimator that can be applied in the presence of nonstationary prices with possibly nonstationary errors. The errors in the NTLOG can be interpreted as random utility parameters. The estimates have classical root-T limiting distributions. We also propose an explanation for the observed nonstationarity of aggregate demand errors, based on aggregation of consumers with heterogeneous preferences in a slowly changing population. Estimates using US data are provided.

Keywords: Demand Systems; Nonstationarity; Aggregation; Heterogeneity; Fixed Effects; Translog; Inflation. (search for similar items in EconPapers)
JEL-codes: C1 D1 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2000-01-01, Revised 2002-06-07
New Economics Papers: this item is included in nep-ets
Note: Previously circulated as "Nonstationary Aggregate Demand Systems and Heterogeneous Consumers".
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Forthcoming, Review of Economics and Statistics

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp441.pdf main text (application/pdf)

Related works:
Journal Article: Demand Systems with Nonstationary Prices (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:441

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().

 
Page updated 2020-05-24
Handle: RePEc:boc:bocoec:441