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Rotterdam model versus almost ideal demand system: will the best specification please stand up?

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  • William A. Barnett

    (Department of Economics, University of Kansas, Lawrence, Kansas, USA)

  • Ousmane Seck

    (California State University at Fullerton, Fullerton, California, USA)

Abstract

The Rotterdam model and the Almost Ideal Demand System (AIDS) are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we determine which model performs best in recovering the true elasticities of demand. The AIDS model is usually used in linearized form. Since the Rotterdam model is also linear in a very similar form, comparison of the Rotterdam model and the AIDS model has been the subject of much speculation in the literature. We not only compare the linearized AIDS model with the Rotterdam model, but also with the full nonlinear AIDS. Copyright © 2008 John Wiley & Sons, Ltd.

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  • William A. Barnett & Ousmane Seck, 2008. "Rotterdam model versus almost ideal demand system: will the best specification please stand up?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 795-824.
    • Handle: RePEc:jae:japmet:v:23:y:2008:i:6:p:795-824
    DOI: 10.1002/jae.1009
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    Cited by:

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    2. Barnett, William A. & Serletis, Apostolos, 2008. "Consumer preferences and demand systems," Journal of Econometrics, Elsevier, vol. 147(2), pages 210-224, December.
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    5. Mun Ho & Wolfgang Britz & Ruth Delzeit & Florian Leblanc & Roberto Roson & Franziska Schuenemann & Matthias Weitzel, 2020. "Modelling Consumption and Constructing Long-Term Baselines in Final Demand," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 5(1), pages 63-108, June.
    6. Clements, Kenneth W. & Gao, Grace, 2015. "The Rotterdam demand model half a century on," Economic Modelling, Elsevier, vol. 49(C), pages 91-103.
    7. Barnett, William A. & Serletis, Apostolos, 2008. "The Differential Approach to Demand Analysis and the Rotterdam Model," MPRA Paper 12319, University Library of Munich, Germany.
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    12. Widenhorn, Andreas & Salhofer, Klaus, 2014. "Using a Generalized Differenced Demand Model to Estimate Price and Expenditure Elasticities for Milk and Meat in Austria," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 63(02), pages 1-16, June.
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    15. Barnett, William A. & Serletis, Apostolos, 2008. "Measuring Consumer Preferences and Estimating Demand Systems," MPRA Paper 12318, University Library of Munich, Germany.
    16. Jason Loughrey & Cathal O’Donoghue, 2012. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 31-66.
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    20. Sanvi Avouyi-Dovi & Christian Pfister & Franck Sédillot, 2019. "French Households’ Portfolio: The Financial Almost Ideal Demand System Appraisal," Working papers 728, Banque de France.
    21. Long Hai Vo & Thai‐Ha Le, 2022. "COVID‐19 test‐kit trade and trade policy: Implications for developing countries," The World Economy, Wiley Blackwell, vol. 45(10), pages 3246-3268, October.
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