Rotterdam vs Almost Ideal Models: Will the Best Demand Specification Please Stand Up?

William Barnett and Ousmane Seck
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Ousmane Seck: Department of Economics, The University of Kansas

No 200605, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: Among the many demand specifications in the literature, the Rotterdam model and the Almost Ideal Demand System (AIDS) have particularly long histories, have been highly developed, and are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we seek to determine which model performs better in terms of its ability to recover the true elasticities of demand. We derive the correct formulae for the AIDS models elasticities, when the T°ßornqvist or two modified versions of the Stone index are used to linearize the model. The resulting linearized AIDS are compared to the full AIDS.

Keywords: Rotterdam Model; Almost Ideal Model; consumer demand system; Monte Carlo study; flexible functional forms (search for similar items in EconPapers)
JEL-codes: C22 C3 C43 E41 G12 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006-02
New Economics Papers: this item is included in nep-fin and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Rotterdam vs Almost Ideal Models: Will the Best Demand Specification Please Stand Up? (2006)
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