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The Matrix Approach to Evaluating Demand Equations

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  • K.W. Clements
  • W. Yang
  • D. Chen

Abstract

As there is a plethora of demand models, which one should be used to estimate income and price elasticities? The paper sheds light on this important practical problem by developing a matrix approach to simulating (MAS) demand equations to analyse their performance under idealized circumstances. Artificial data on the dependent variable are generated by one model, and these are then used for the estimation of another model. As an illustrative application, using four popular models, a 4 × 4 matrix is generated which gives all pair-wise comparisons. The performance of the models is then evaluated on the basis of the quality of the income and own-price elasticity estimates.
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Suggested Citation

  • K.W. Clements & W. Yang & D. Chen, 1998. "The Matrix Approach to Evaluating Demand Equations," Economics Discussion / Working Papers 98-10, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:98-10
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    Cited by:

    1. Kenneth W. Clements & Dongling Chen, 1999. "Simulating Demand Systems," World Scientific Book Chapters, in: World Consumption Economics, chapter 8, pages 198-212, World Scientific Publishing Co. Pte. Ltd..
    2. Michael Gorman, 2005. "Estimation of an implied price elasticity of demand through current pricing practices," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1027-1035.
    3. Saroja Selvanathan & E. A. Selvanathan, 2004. "Empirical regularities in South African consumption patterns," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2327-2333.
    4. H. Ahammad & N. Islam, 1999. "Estimating the WA Agricultural Production System: A profit function approach," Economics Discussion / Working Papers 99-11, The University of Western Australia, Department of Economics.
    5. Kenneth Clements & Wana Yang & Dongling Chen, 2001. "The matrix approach to evaluating demand equations," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 957-967.

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