Barnett, William A. and Serletis, Apostolos (2008): Consumer preferences and demand systems.

PDF
MPRA_paper_8413.pdf Download (285kB)  Preview 
Abstract
This paper is an uptodate survey of the stateoftheart in consumer demand modelling. We review and evaluate advances in a number of related areas, including different approaches to empirical demand analysis, such as the differential approach, the locally �flexible functional forms approach, the seminonparametric approach, and a nonparametric approach. We also address estimation issues, including sampling theoretic and Bayesian estimation methods, and discuss the limitations of the currently common approaches. We also highlight the challenge inherent in achieving economic regularity, for consistency with the assumptions of the underlying neoclassical economic theory, as well as econometric regularity, when variables are nonstationary.
Item Type:  MPRA Paper 

Original Title:  Consumer preferences and demand systems 
Language:  English 
Keywords:  Representative consumer; Engel curves; rank; flexible functional forms; parametric tests; nonparametric tests; theoretical regularity 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C14  Semiparametric and Nonparametric Methods: General C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C50  General C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models; Multiple Variables > C30  General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C11  Bayesian Analysis: General 
Item ID:  8413 
Depositing User:  William A. Barnett 
Date Deposited:  24. Apr 2008 01:01 
Last Modified:  12. Feb 2013 13:04 
References:  Afriat, S., 1967, The construction of a utility function from expenditure data. International Economic Review 8, 6777. Allen, R.G.D., 1938, Mathematical analysis for economists. Macmillan, London. Anderson, G.I. and R.W. Blundell, 1982, Estimation and hypothesis testing in dynamic singular equation systems. Econometrica 50, 15591571. Attfield, C., 1997, Estimating a cointegrated demand system. European Economic Review 41, 6173. Banks, J., R. Blundell, and A. Lewbel, 1997, Quadratic Engel curves and consumer demand. Review of Economics and Statistics 79, 527539. Barnett, W. A., 1976, Maximum likelihood and iterated Aitken estimation of nonlinear systems of equations. Journal of the American Statistical Association 71, 354360. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., 1977, Pollak and Wachter on the household production function approach. Journal of Political Economy 85, 10731082. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W. A., 1979a, The joint allocation of leisure and goods expenditure, Econometrica 45, 11171136. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W. A., 1978b, Theoretical foundations for the Rotterdam model. Review of Economic Studies 46, 109130. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., 1983a, Definitions of secondorder approximation and of flexible functional form. Economics Letters 12, 3135. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., 1983b, New indices of money supply and the flexible Laurent demand system. Journal of Business and Economic Statistics 1, 723. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., 1985, The minflex Laurent translog flexible functional form. Journal of Econometrics 30, 3344. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W. A., 1995, Exact aggregation under risk, in: W. A. Barnett, M. Salles, H. Moulin, and N. Schofield (Eds.), Social Choice, Welfare, and Ethics, Cambridge University Press, Cambridge, UK, 353374. Reprinted in Barnett, W.A. and A. Serletis, (Eds.), The Theory of Monetary Aggregation, Elsevier, Amsterdam, 2000. Barnett, W.A., 2002, Tastes and technology: Curvature is not sufficient for regularity. Journal of Econometrics 108, 199202. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A. and A. Jonas, 1983, The MüntzSzatz demand system: An application of a globally well behaved series expansion. Economics Letters 11, 337342. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A. and Y.W. Lee, 1985, The global properties of the minflex Laurent, generalized Leontief, and translog flexible functional forms. Econometrica 53, 14211437. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A. and M. Pasupathy, 2003, Regularity of the generalized quadratic production model: A counterexample. Econometric Reviews 22, 135154. Barnett, W.A. and O. Seck, 2008, Rotterdam model versus Almost Ideal Demand System: Will the best specification please stand up? Journal of Applied Econometrics (forthcoming). Barnett, W.A. and A. Serletis, 2009a, Measuring consumer preferences and estimating demand systems, in: D. Slottje (Ed.), Quantifying consumer preferences: Estimating demand systems. Contributions to Economic Analysis. Elsevier, Amsterdam. Barnett, W.A. and A. Serletis, 2009b, The Rotterdam model, in: D. Slottje (Ed.), Quantifying consumer preferences: Estimating demand systems. Contributions to Economic Analysis. Elsevier, Amsterdam. Barnett, W.A. and I. Usui, 2007, The theoretical properties of the Normalized Quadratic consumer demand model, in: Barnett, W.A. and A. Serletis, (Eds.), Functional structure inference, Elsevier, Amsterdam. Barnett, W.A. and P. Yue, 1988, Seminonparametric estimation of the Asymptotically Ideal Model: The AIM demand system, in: G.F. Rhodes and T.B. Fomby, (Eds.), Nonparametric and robust inference: Advances in econometrics, Vol. 7. JAI Press, Greenwich CT. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., J. Geweke, and M.D. Wolfe, 1991, Seminonparametric Bayesian estimation of the Asymptotically Ideal production model. Journal of Econometrics 49, 550. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., J. Geweke, and P. Yue, 1991, Seminonparametric Bayesian estimation of the Asymptotically Ideal Model: The AIM demand system, in: W.A. Barnett, J. Powell, and G. Tauchen, (Eds.), Nonparametric and semiparametric methods. Cambridge University Press, Cambridge. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., Y.W. Lee, and M.D. Wolfe, 1985, The threedimensional global properties of the minflex Laurent, generalized Leontief, and translog flexible functional forms. Journal of Econometrics 30, 331. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barnett, W.A., Y.W. Lee, and M.D. Wolfe, 1987, The global properties of the two minflex Laurent flexible functional forms. Journal of Econometrics 36, 281298. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004. Barten, A.P., 1969, Maximum likelihood estimation of a complete system of demand equations. European Economic Review 1, 773. Basmann, R.L., D.J. Molina, and D.J. Slottje, 1983, Budget constraint prices as preference changing parameters of generalized FechnerThurstone direct utility functions. American Economic Review 73, 411413. Becker, G.S., 1965, A theory of the allocation of time. Economic Journal 75, 493517. Berndt, E.R. and N.E. Savin, 1975, Estimation and hypothesis testing in singular equation systems with autoregressive disturbances. Econometrica 43, 937957. Blackorby, C. and R.R. Russell, 1989, Will the real elasticity of substitution please stand up? American Economic Review 79, 882888. Blundell, R., 1988, Consumer behaviour: Theory and empirical evidence  A survey. Economic Journal 98, 1665. Brown, J.A.C. and A.S. Deaton, 1972, Models of consumer behaviour: A survey. Economic Journal 82, 1145236. Burguete, J.F., A.R. Gallant, and G. Souza, 1982, On unification of the asymptotic theory of nonlinear econometric models. Econometric Reviews 1, 151190. Caves, D.W. and L.R. Christensen, 1980, Global properties of flexible functional forms. American Economic Review 70, 422432. Chib, S. and E. Greenberg, 1995, Understanding the MetropolisHastings algorithm. The American Statistician 49, 327335. Chib, S. and E. Greenberg, 1996, Markov chain Monte Carlo simulation methods in econometrics. Econometric Theory 12, 409431. Christensen, L.R., D.W. Jorgenson, and L.J. Lau, 1975, Transcendental logarithmic utility functions. American Economic Review 65, 367383. Cooper, R.J. and K.R. McLaren, 1996, A system of demand equations satisfying effectively global regularity conditions. Review of Economics and Statistics 78, 359364. Davidson, R. and J.G. Mackinnon, 1993, Estimation and inference in econometrics. Oxford University Press, Oxford. Davis, G.C. and J. Gauger. "Measuring Substitution in Monetary Asset Demand Systems." Journal of Business and Economic Statistics 14 (1996), 203208. Deaton, A.S. and J.N. Muellbauer, 1980a, An almost ideal demand system. American Economic Review 70, 312326. Deaton, A.S. and J.N. Muellbauer, 1980b, Economics and consumer behaviour. Cambridge University Press, Cambridge. de Peretti, P., 2005, Testing the significance of the departures from utility maximization. Macroeconomic Dynamics 9, 372397. Diewert, W.E., 1971, An Application of the Shephard duality theorem: a generalized Leontief production function. Journal of Political Economy 79, 481507. Diewert, W.E., 1973, Functional forms for profit and transformation functions. Journal of Economic Theory 6, 284316. Diewert, W.E., 1974, Applications of duality theory, in: M. Intriligator and D. Kendrick, (Eds.), Frontiers in quantitative economics, Vol. 2. NorthHolland, Amsterdam. Diewert, W.E. and C. Parkan, 1985, Tests for the consistency of consumer data. Journal of Econometrics 30, 127147. Diewert, W.E. and T.J. Wales, 1987, Flexible functional forms and global curvature conditions. Econometrica 55, 4368. Diewert, W.E. and T.J. Wales, 1988, Normalized quadratic systems of consumer demand functions. Journal of Business and Economic Statistics 6, 303312. Diewert, W.E. and T.J. Wales, 1993, Linear and quadratic spline models for consumer demand functions. Canadian Journal of Economics 26, 77106. Diewert, W.E., M. Avriel, and I. Zang, 1977, Nine kinds of quasiconcavity and concavity. Journal of Economic Theory 25, 397420. Eastwood, B.J. and A.R. Gallant, 1991, Adaptive rules for seminonparametric estimators that achieve asymptotic normality. Econometric Theory 7, 307340. Elger, T., B. Jones, D. Edgerton, and J. Binner, 2008, A note on the optimal level of monetary aggregation in the UK. Macroeconomic Dynamics (forthcoming). Engle, R.F. and C.W.J. Granger, 1987, Cointegration and error correction: representation, estimation and testing. Econometrica 55, 251276. Fleissig, A.R. and G.A. Whitney, 2005, Testing for the significance of violations of Afriat's inequalities. Journal of Business and Economic Statistics 23, 355362. Fleissig, A.R., A.R. Hall, and J.J. Seater, 2000, GARP, separability, and the representative agent. Macroeconomic Dynamics 4, 324342. Gallant, A.R., 1981, On the bias of flexible functional forms and an essentially unbiased form: The Fourier functional form. Journal of Econometrics 15, 211245. Gallant, A.R., 1982, Unbiased determination of production technologies. Journal of Econometrics 20, 285323. Gallant, A.R. and G.H. Golub, 1984, Imposing curvature restrictions on flexible functional forms. Journal of Econometrics 26, 295321. Geman, S. and D. Geman, 1984, Stochastic relaxation, Gibbs distributions and the Bayesian restoration of images. IEEE Transactions on Pattern Analysis and Machine Intelligence 12, 609628. Gorman, W.M., 1961, On a class of preference fields. Metroeconomica 13, 5356. Gorman, W.M., 1981, Some Engel curves, in: A.S. Deaton, (Ed.), Essays in the theory and measurement of consumer behaviour: In honour of Sir Richard Stone. Cambridge University Press, Cambridge. Griffiths, W.E. and D. Chotikapanich, 1997, Bayesian methodology for imposing inequality constraints on a linear expenditure system with demographic factors. Australian Economic Papers 36, 321341. Guilkey, D.K. and C.A.K. Lovell, 1980, On the flexibility of the translog approximation. International Economic Review 21, 137147. Hastings, W.K., 1970, Monte Carlo sampling methods using Markov chains and their applications. Biometrica 57, 97109. Hicks, J.R., 1936, A Revision of demand theory. Oxford University Press, Oxford. Hurwicz, L. and H. Uzawa, 1971, On the integrability of demand functions, in: J. Chipman, L. Hurwicz, M. Richter, and H. Sonnenschein, (Eds.), Preferences, utility, and demand. Harcourt, Brace, Jovanovich, New York. Jones, B. and P. de Peretti, 2005, A Comparison of two methods for testing the utility maximization hypothesis when quantity data is measured with error. Macroeconomic Dynamics 9, 612629. Jones, B., N. McCloud, and D.L. Edgerton, 2007, Nonparametric test of the necessary and sufficient conditions for separability, in: Barnett, W.A. and A. Serletis, (Eds.), Functional structure inference, Elsevier, Amsterdam. Judge, G.G., R.C. Hill, W.E. Griffiths, H. Lütekpohl, and T.C. Lee, 1988, Introduction to the theory and practice of econometrics. John Wiley and Sons, New York. Kirman, A.P., 1992, Whom or what does the representative individual represent? Journal of Economic Perspectives 6, 117136. Koop, G., J. Osiewalski, and M. Steel, 1997, Bayesian efficiency analysis through individual effects: Hospital cost frontiers. Journal of Econometrics 76, 77105. LaFrance, J.T., 2001, Duality for the household: Theory and applications, in: B. Gardner and G. Rausser, (Eds.), Handbook of Agricultural Economics. Elsevier, New York. LaFrance, J.T., 2004, Integrability of the linear approximate almost ideal demand system. Economics Letters 84, 297303. Lancaster, K.J., 1966, A new approach to consumer theory. Journal of Political Economy 74, 132157. Lau, L.J., 1974, Applications of duality theory: A comment, in: M. Intriligator and D. Kendrick, (Eds.), Frontiers of quantitative economics, Vol. 2. North Holland, Amsterdam. Lau, L.J., 1978, Testing and imposing monotonicity, convexity, and quasiconvexity constraints, in: M. Fuss and D. McFadden, (Eds.), Production economics: A dual approach to theory and applications, Vol. 1. North Holland, Amsterdam. Lewbel, A., 1991, The rank of demand systems: Theory and nonparametric estimation. Econometrica 59, 711730. Lewbel, A., 1997, Consumer demand systems and household equivalence scales, in: M.H. Pesaran and P. Schmidt, (Eds.), Handbook of applied econometrics, Vol. 2. Blackwell Publishers, Oxford. Lewbel, A. and S. Ng, 2005, Demand systems with nonstationary prices. Review of Economics and Statistics 87, 479494. Lewbel, A. and K. Pendakur, 2007, Tricks with Hicks: The EASI implicit Marshallian demand system for unobserved heterogeneity and flexible Engel curves. Mimeo. Metropolis, N., A.W. Rosenbluth, M.N. Rosenbluth, A.H. Teller, and E. Teller, 1953, Equations of state calculations by fast computing machines. Journal of Chemical Physics 21, 10871092. Morishima. M., 1967, A few suggestions on the theory of elasticity (in Japanese). Keizai Hyoron (Economic Review) 16, 14450. Moschini, G., 1999, Imposing local curvature in flexible demand systems. Journal of Business and Economic Statistics 17, 487490. Muellbauer, J.N., 1975, Aggregation, income distribution and consumer demand. Review of Economic Studies 42, 525543. Muellbauer, J.N., 1976, Community preferences and the representative consumer. Econometrica 44, 979999. Ng, S., 1995, Testing for homogeneity in demand systems when the regressors are nonstationary. Journal of Applied Econometrics 10, 147163. Ogaki, M., 1992, Engel's law and cointegration. Journal of Political Economy 100, 10271046. Pollak, R.A. and T.J. Wales, 1980, Comparison of the quadratic expenditure system and translog demand systems with alternative specifications of demographic effects. Econometrica 48, 595612. Ryan, D.L. and T.J. Wales, 1998, A simple method for imposing local curvature in some flexible consumerdemand systems. Journal of Business and Economic Statistics 16, 331338. Ryan, D.L. and T.J. Wales, 1999, Flexible and semiflexible consumer demands with quadratic Engel curves. Review of Economics and Statistics 81, 277287. Serletis, A. and A. Shahmoradi, 2005, Seminonparametric estimates of the demand for money in the United States. Macroeconomic Dynamics 9, 542559. Serletis, A. and A. Shahmoradi, 2007, Flexible functional forms, curvature conditions, and the demand for assets. Macroeconomic Dynamics 11, 455486. Serletis, A. and A. Shahmoradi, 2008, Note on finite approximations of the Asymptotically Ideal Model. Macroeconomic Dynamics, forthcoming. Shephard, R.W., 1953, Cost and production functions. Princeton University Press, Princeton. Stock, J.H., 1994, Unit roots, structural breaks and trends, in: R. Engel and D. McFadden, (Eds.), Handbook of econometrics, Vol. 4. Elsevier, Amsterdam. Stoker, T.M., 1993, Survey on aggregation in economics. Journal of Economic Literature 31, 18271874. Stone, R., 1954, Linear expenditure systems and demand analyis: An application to the pattern of British demand. Economic Journal 64, 511527. Swofford, J.L. and G.A. Whitney, 1987, Nonparametric tests of utility maximization and weak separability for consumption, leisure and money. Review of Economics and Statistics 69, 458464. Swofford, J.L. and G.A. Whitney, 1988, A comparison of nonparametric tests of weak separability for annual and quarterly data on consumption, leisure, and money. Journal of Business and Economic Statistics 6, 241246. Swofford, J.L. and G.A. Whitney, 1994, A revealed preference test for weakly separable utility maximization with incomplete adjustment. Journal of Econometrics 60, 234249. Terrell, D., 1996, Incorporating monotonicity and concavity conditions in flexible functional forms. Journal of Applied Econometrics 11, 179194. Theil, H., 1965, The information approach to demand analysis. Econometrica 33, 6787. Uzawa, H., 1962, Production functions with constant elasticities of substitution. Review of Economic Studies 29, 291299. Watson, M.W., 1994, Vector autoregressions and cointegration, in: R. Engel and D. McFadden, (Eds.), Handbook of econometrics, Vol. 4. Elsevier, Amsterdam. Varian, H.R., 1982, The nonparametric approach to demand analysis. Econometrica 50, 945973. Varian, H.R., 1983, Nonparametric tests of consumer behavior. Review of Economic Studies 50, 99110. Varian, H.R., 1985, Nonparametric analysis of optimizing behavior with measurement error. Journal of Econometrics 30, 445458. Zellner, A., 1962, An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association 57, 348368. Zellner, A., 1997, The Bayesian method of moments (BMOM): Theory and applications, in: T. Fomby and R. Hill, (Eds.), Advances in econometrics, Vol. 12. JAI Press, Greenwich, CT. 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/8413 