Journal Article

Testing Homogeneity in the Linearized Almost Ideal Demand System

Adolf Buse

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 80, issue 1, pages 208-220
Published in print February 1998 | ISSN: 0002-9092
Published online February 1998 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/3180282
Testing Homogeneity in the Linearized Almost Ideal Demand System

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  • Household Behaviour and Family Economics
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The behavior of exact tests for homogeneity (F and Hotelling T2) is compared with size-adjusted LR tests in the linearized AIDS model with different approximating price indexes (Stone, Paasche, Laspeyres). The Monte Carlo evidence shows that test size distortions are sensitive to the correlation structure of prices, the time-series properties of the data, and the choice of price index. None of the results explains the persistent over-rejection of homogeneity in applied work.

Keywords: approximating indexes; exact tests; homogeneity; linearized AIDS; Monte Carlo; C520; D120

Journal Article.  0 words. 

Subjects: Household Behaviour and Family Economics ; Econometric Modelling

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