When Do Estimated Demand Systems Automatically Satisfy Adding Up?
Publikation/Tidskrift/Serie: Working Papers, Department of Economics, Lund University
Förlag: Department of Economics, Lund University
Conditions are presented for when estimated demand systems automatically satisfy adding up. It is shown that there exist nonlinear demand systems (such as the Almost Ideal Demand System) where adding up is allowed in the model, but where it is not automatically satisfied for the LS and SUR estimates. In these situations it is possible to test the applicability of the model as regards adding up. The results are applied to a small model for the consumption of food in Sweden, and it is shown that a test of adding up can be useful in a misspecification analysis.
- TESTS OF RESTRICTIONS
- DEMAND ANALYSIS
- ALLOCATION MODELS
- ADDING UP
7th Econometric Society World Congress