Barnett, William A. and Kalonda-Kanyama, Isaac (2012): Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up?
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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.
|Item Type:||MPRA Paper|
|Original Title:||Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up?|
|Keywords:||almost ideal demand system, Rotterdam model, structural time series models, Monte Carlo experiment, theoretical regularity|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection
|Depositing User:||William A. Barnett|
|Date Deposited:||08. Feb 2012 04:03|
|Last Modified:||12. Feb 2013 16:59|
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