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Rotterdam vs Almost Ideal Models: Will the Best Demand Specification Please Stand Up?

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  • Barnett, William A.
  • Seck, Ousmane

Abstract

Among the many demand specifications in the literature, the Rotterdam model and the Almost Ideal Demand System (AIDS) have particularly long histories, have been highly developed, and are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we seek to determine which model performs better in terms of its ability to recover the true elasticities of demand. We derive the correct formulae for the AIDS models elasticities, when the Törnqvist or two modified versions of the Stone index are used to linearize the model. The resulting linearized AIDS are compared to the full AIDS.

Suggested Citation

  • Barnett, William A. & Seck, Ousmane, 2006. "Rotterdam vs Almost Ideal Models: Will the Best Demand Specification Please Stand Up?," MPRA Paper 417, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:417
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    2. Pampanini, Rossella & Marchini, Andrea & Diotallevi, Francesco, 2010. "A quantitative analysis of olive oil market in Italy," MPRA Paper 40638, University Library of Munich, Germany.
    3. Yeboah, Osei Agyemang & Naanwaab, Cephas B. & Otchere, Richmond, 2015. "Demand for Beef Associated with Country of Origin Labeling," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196859, Southern Agricultural Economics Association.
    4. Färe, Rolf & Grosskopf, Shawna & Hayes, Kathy J. & Margaritis, Dimitris, 2008. "Estimating demand with distance functions: Parameterization in the primal and dual," Journal of Econometrics, Elsevier, vol. 147(2), pages 266-274, December.
    5. McAleer, Michael & Medeiros, Marcelo C. & Slottje, Daniel, 2008. "A neural network demand system with heteroskedastic errors," Journal of Econometrics, Elsevier, vol. 147(2), pages 359-371, December.
    6. Diotallevi, Francesco, 2010. "L’analisi della domanda degli oli extravergine d’oliva in Italia Un’applicazione del modello A.I.D.S [The analysis of the demand for extra virgin olive oil in Italy An application of the AIDSmodel]," MPRA Paper 41469, University Library of Munich, Germany.
    7. Shibia, Mumina & Rahman, Shaikh & Chidmi, Benaissa, 2017. "Consumer Demand For Meat In Kenya: An Examination Of The Linear Approximate Almost Ideal Demand System," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252789, Southern Agricultural Economics Association.

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    More about this item

    Keywords

    Rotterdam Model; Almost Ideal Model; consumer demand system; Monte Carlo study; flexible functional forms;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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