《《Incorporating demand shifters in the Almost Ideal demand》.pdfVIP

Economics Letters 70 (2001) 73–78 /locate/econbase Incorporating demand shifters in the Almost Ideal demand system Julian M. Alstona ,1, James A. Chalfant1 a , *, Nicholas E. Piggottb aDepartment of Agricultural and Resource Economics, University of California, Davis, CA 95616, USA bDepartment of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC, USA Received 13 July 1998; accepted 14 December 1999 Abstract Intercepts of share equations generally include demand shift variables. In the Almost Ideal demand system and related models, this results in estimates that depend on units of measurement. Solutions to this problem are identified and discussed.  2001 Elsevier Science B.V. All rights reserved. Keywords : Almost Ideal demand system; Generalized Almost Ideal demand system; Demand shifters; Scaling JEL classification : D12; Q11 1. Introduction In consumer demand analysis, variables other than prices and income are often included in demand equations. For instance, in studies using cross-sectional data, demographic variables might be included, and in studies using time series data, trends and seasonal variables might be included. Researchers must be careful to incorporate these demand shift variables in a manner that maintains the theoretical properties of the model. Importantly, the estimated demand system must be ‘Closed Under Unit Scaling’ (CUUS), a property that ensures that estimated economic effects are invariant to the scaling of the data (Pollak and Wales, 1992, p. 70). In app