The Differential Approach to Demand Analysis and the Rotterdam Model

Barnett, William A. and Serletis, Apostolos (2008): The Differential Approach to Demand Analysis and the Rotterdam Model.

Abstract

This paper presents the differential approach to applied demand analysis. The demand systems of this approach are general, having coefficients which are not necessarily constant. We consider the Rotterdam parameterization of differential demand systems and derive the absolute and relative price versions of the Rotterdam model, due to Theil (1965) and Barten (1966). We address estimation issues and point out that, unlike most parametric and semi-nonparametric demand systems, the Rotterdam model is econometrically regular.

• Item Type: MPRA Paper
• Language: English
• Keywords: differential demand systems; theoretical regularity; econometric regularity
• Subjects: 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; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

References

Attfield, C., 1997, Estimating a cointegrated demand system. European Economic Review 41, 61-73.

Banks, J., R. Blundell, and A. Lewbel, 1997, Quadratic Engel curves and consumer demand. Review of Economics and Statistics 79, 527-539.

Barnett, W.A., 1979a, Theoretical foundations for the Rotterdam model. Review of Economic Studies 46, 109-130. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004.

Barnett, W.A., 1979b, The Joint Allocation of Leisure and Goods Expenditure. Econometrica 45, 1117-1136. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004.

Barnett, W.A., 1981, Consumer theory and labor supply. North Holland, Amsterdam.

Barnett, W.A., 1983, New indices of money supply and the flexible Laurent demand system. Journal of Business and Economic Statistics 1, 7-23. Reprinted in Barnett, W.A. and J. Binner, (Eds.), Functional structure and approximation in econometrics, Elsevier, Amsterdam, 2004.

Barnett, W.A., 2002, Tastes and technology: Curvature is not sufficient for regularity. Journal of Econometrics 108, 199-202. 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 Müntz-Szatz demand system: An application of a globally well behaved series expansion. Economics Letters 11, 337-342. 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, 135-154.

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 23, 699-728.

Barnett, W.A. and A. Serletis, 2008, Consumer preferences and demand systems. Journal of Econometrics 147, 210-224.

Barten, A.P., 1964, Consumer demand functions under conditions of almost additive preferences. Econometrica 32, 1-38.

Barten, A.P., 1966, Theorie en empirie van een volledig stelsel van vraagvergelijkingen (Theory and empirics of a complete system of demand equations). Doctoral dissertation (Netherlands School of Economics, Rotterdam).

Barten, A.P., 1967, Evidence on the Slutsky conditions for demand equations. Review of Economics and Statistics 49, 77-84.

Barten, A.P., 1969, Maximum likelihood estimation of a complete system of demand equations. European Economic Review 1, 7-73.

Byron, R.P., 1970, A simple method for estimating demand systems under separable utility assumptions. Review of Economic Studies 37, 261-274.

Christensen, L.R., D.W. Jorgenson, and L.J. Lau, 1975, Transcendental logarithmic utility functions. American Economic Review 65, 367-383.

Deaton, A.S., 1972, The estimation and testing of systems of demand equations. European Economic Review 3, 390-411.

Deaton, A.S. and J.N. Muellbauer, 1980, An almost ideal demand system. American Economic Review 70, 312-326.

Diewert, W.E., 1971, An application of the Shephard duality theorem: a generalized Leontief production function. Journal of Political Economy 79, 481-507.

Diewert, W.E., 1974, Applications of duality theory, in: M. Intriligator and D. Kendrick, (Eds.), Frontiers in quantitative economics, Vol. 2. North-Holland, Amsterdam.

Diewert, W.E. and T.J. Wales, 1988, Normalized quadratic systems of consumer demand functions. Journal of Business and Economic Statistics 6, 303-312.

Divisia, F., 1925, L' indice monetaire et la theorie de la monnaie. Revue d' Economie Politique 39, 980-1008.

Engle, R.F. and C.W.J. Granger, 1987, Cointegration and error correction: representation, estimation and testing. Econometrica 55, 251-276.

Fayyad, S.K., 1986, A microeconomic system-wide approach to the estimation of the demand for money. Federal Reserve Bank of St. Louis Review August/September, 22-33.

Frisch, R., 1932, New methods of measuring maginal utility. J.C.B. Mohr, Tiibingen.

Gallant, A.R., 1981, On the bias of flexible functional forms and an essentially unbiased form: The Fourier functional form. Journal of Econometrics 15, 211-245.

Houthakker, H.S., 1960, Additive preferences. Econometrica 28, 244-257.

Lewbel, A. and S. Ng, 2005, Demand systems with nonstationary prices. Review of Economics and Statistics 87, 479-494.

McFadden, D.L., 1964, Existence conditions for Theil-type preferences. University of California, Berkeley, mimeograph.

Ogaki, M., 1992, Engel's law and cointegration. Journal of Political Economy 100, 1027-1046.

Phlips, L., 1974, Applied consumption analysis. North Holland, Amsterdam.

Selvanathan, S. and E.A. Selvanathan, 2005, The Demand for alcohol, tobacco and marijuana: International evidence. Ashgate, England.

Slutsky, E., 1915, Sulla teoria del bilancio del consumator. Giornale degli Economisti 51, 1-26; Translation, On the theory of the budget of the consumer, in: G.J. Stigler and K.E. Boulding (Eds.) Readings in price theory. Richard D. Irwin, Chicago (1952).

Theil, H., 1965, The information approach to demand analysis. Econometrica 33, 67-87.

Theil, H., 1967, Economics and Information theory. North Holland, Amsterdam.

Theil, H., 1971, Principles of econometrics. John Wiley & Sons Inc., New York.

Theil, H., 1975, Theory and measurement of consumer demand, Vol. 1. North Holland, Amsterdam.

Theil, H., 1976, Theory and measurement of consumer demand, Vol. 2. North Holland, Amsterdam.

Theil, H., 1980, The system-wide approach to microeconomics. The University of Chicago Press, Chicago.

Working, H., 1943, Statistical laws of family expenditure. Journal of the American Statistical Association 38, 43-56.