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On the Estimation of Demand Systems Through Consumption Efficiency

Eduardo Ley and Mark Steel ()

Econometrics from University Library of Munich, Germany

Abstract: We consider a Bayesian implementation of a new approach to estimating Demand Systems. This approach, suggested by Varian (1990), is based on a generalization of Afriat's (1967) efficiency index. The model we propose leads to a very tractable posterior and predictive analysis, yet allows for interesting economic interpretations. We conduct a sensitivity analysis with respect to the prior in an application to annual aggregate U.S. consumption data, and conclude that the sample is quite informative. Average efficiency and expected budget shares are examined in some detail.

Keywords: Bayesian Methods; Budget Shares; Money-Metric Utility; Monte Carlo (search for similar items in EconPapers)
JEL-codes: C11 C50 D12 (search for similar items in EconPapers)
Date: 1995-03-21, Revised 1996-02-22
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