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Demand Estimation in the Presence of Stochastic Trend and Seasonality: The Case of Meat Demand in the United Kingdom
Author(s) -
Fraser Iain,
Moosa Imad A.
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00244
Subject(s) - seasonality , econometrics , almost ideal demand system , economics , sample (material) , stochastic modelling , goodness of fit , series (stratigraphy) , estimation , mathematics , statistics , demand management , macroeconomics , paleontology , chemistry , management , chromatography , biology
Abstract If budget shares have stochastic trend or seasonality or both, then demand equations based on the assumption of deterministic trend and deterministic seasonality will be mis‐specified. We test this proposition by estimating a Linearized Almost Ideal (LAI) demand system for meat demand in the United Kingdom using Harvey's structural time series methodology. We demonstrate that the model specification allowing for stochastic trend and deterministic seasonality performs best in terms of diagnostic tests and goodness of fit measures. It is also shown that the model with stochastic trend is better at out‐of‐sample forecasting.