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Interest Rates and Durability in the Linear Expenditure Family

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  • Gordon Fisher
  • Michael McAleer
  • Diana Whistler

Abstract

This paper demonstrates that the extended linear expenditure system with durables (DELES) satisfies first-order conditions for local unidentifiability, and discuss alternative methods that might be used to achieve identifiability, as well as their implications. Estimates are presented using seasonally adjusted, quarterly Australian data from 1959Q4 to 1976Q2. This exercise compares the effects of allowing for first-order autocorrelation. We fix the decay rate for durables to secure identifiability, however, the estimates of the remaining parameters are insensitive to the value chosen. This suggests a major difficulty in interpreting DELES and leads us to reconsider its limiting properties.
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Suggested Citation

  • Gordon Fisher & Michael McAleer & Diana Whistler, 1981. "Interest Rates and Durability in the Linear Expenditure Family," Canadian Journal of Economics, Canadian Economics Association, vol. 14(2), pages 331-341, May.
    • Handle: RePEc:cje:issued:v:14:y:1981:i:2:p:331-41
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    References listed on IDEAS

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    1. Beach, Charles M & MacKinnon, James G, 1979. "Maximum Likelihood Estimation of Singular Equation Systems with Autoregressive Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 459-464, June.
    2. BARTEN, Anton P., 1969. "Maximum likelihood estimation of a complete system of demand equations," LIDAM Reprints CORE 34, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    4. Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, vol. 39(3), pages 577-591, May.
    5. Klevmarken, N. Anders, 1979. "A comparative study of complete systems of demand functions," Journal of Econometrics, Elsevier, vol. 10(2), pages 165-191, June.
    6. Peter B. Dixon & Constantino Lluch, 1977. "Durable Goods in the Extended Linear Expenditure System," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(2), pages 381-384.
    7. A. A. Powell, 1973. "An ELES Consumption Function for the United States," The Economic Record, The Economic Society of Australia, vol. 49(3), pages 337-357, September.
    8. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
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    10. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    11. repec:bla:ecorec:v:49:y:1973:i:127:p:337-57 is not listed on IDEAS
    12. Constantino Lluch & R. Williams, 1975. "Consumer Demand Systems and Aggregate Consumption in the US: An Application of the Extended Linear Expenditure System," Canadian Journal of Economics, Canadian Economics Association, vol. 8(1), pages 49-66, February.
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    Cited by:

    1. Chambers, Marcus J, 1992. "Estimation of a Continuous-Time Dynamic Demand System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(1), pages 53-64, Jan.-Marc.

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