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The Theoretical Regularity Properties of the Normalized Quadratic Consumer Demand Model

Barnett, William A. and Usui, Ikuyasu (2006): The Theoretical Regularity Properties of the Normalized Quadratic Consumer Demand Model.

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Abstract

We conduct a Monte Carlo study of the global regularity properties of the Normalized Quadratic model. We particularly investigate monotonicity violations, as well as the performance of methods of locally and globally imposing curvature. We find that monotonicity violations are especially likely to occur, when elasticities of substitution are greater than unity. We also find that imposing curvature locally produces difficulty in the estimation, smaller regular regions, and the poor elasticity estimates in many cases considered in the paper. Imposition of curvature alone does not assure regularity, and imposing local curvature alone can have very adverse consequences.

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