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Rotterdam model versus almost ideal demand system: will the best specification please stand up?
Author(s) -
Barnett William A.,
Seck Ousmane
Publication year - 2008
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.1009
Subject(s) - ideal (ethics) , rotterdam study , speculation , monte carlo method , computer science , almost ideal demand system , economics , econometrics , operations research , mathematics , microeconomics , statistics , finance , law , production (economics) , political science , confidence interval
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.