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

MPRA Paper from University Library of Munich, Germany

Abstract: We use Monte Carlo simulations to assess the ability of the Rotterdam model and the 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. We find that the Rotterdam model performs better 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.

Keywords: almost ideal demand system; Rotterdam model; structural time series models; Monte Carlo experiment; theoretical regularity (search for similar items in EconPapers)
JEL-codes: C51 C52 D12 (search for similar items in EconPapers)
Date: 2012-02-07
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https://mpra.ub.uni-muenchen.de/36513/1/MPRA_paper_36513.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/36608/3/MPRA_paper_36608.pdf revised version (application/pdf)

Related works:
Journal Article: Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up? (2013)
Working Paper: Time-Varying Parameters in the Almost Ideal Demand System and the Rotterdam Model: Will the Best Specication Please Stand Up? (2012)
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