Regular and Estimable Inverse Demand Systems: A Distance Function Approach

Ka Wong () and Keith McLaren

No 6/02, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: To be useful for realistic policy simulation in an environment of rapid structural change, inverse demand systems must remain regular over substantial variations in quantities. The distance function is a convenient vehicle for generating such systems. While it directly yields Hicksian inverse demand functions, those functions will not usually have an explicit representation in terms of the observable variables. Note however that this problem need not hinder estimation and could be solved by using the numerical inversion estimation approach. This paper develops the formal theory for using distance functions in this context, and demonstrates the operational feasibility of the method.

Keywords: Inverse Demands; Distance Functions; Numerical Inversion Estimation Method; Separability. (search for similar items in EconPapers)
JEL-codes: D11 D12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2002-07
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Citations: View citations in EconPapers (1)

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