Maximum likelihood estimation of linear expenditure systems with serially correlated errors: An application

The present paper uses Canadian data for the period 1947–1972 and three commodity groups to examine the empirical importance of restrictions imposed by autocorrelated disturbances on the static linear expenditure system, LES. For comparison a simple habit persistence model is also estimated. Results...

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Bibliographic Details
Published in:European economic review 1978-01, Vol.11 (2), p.207-219
Main Authors: Green, Richard D., Hassan, Zuhair A., Johnson, Stanley R.
Format: Article
Language:English
Subjects:
autocorrelation
elasticity
estimation
linear expenditure system
methodology
Utility
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Summary:The present paper uses Canadian data for the period 1947–1972 and three commodity groups to examine the empirical importance of restrictions imposed by autocorrelated disturbances on the static linear expenditure system, LES. For comparison a simple habit persistence model is also estimated. Results of applications of likelihood ratio tests indicate that autocorrelation is present in the data, that a simple habit persistence hypothesis on the structure is implied and that the restrictions imposed by the form of the utility function and maximization problem are inconsistent with the data whether or not adjusted for the autocorrelation in errors. Despite these differences, the estimated price and income elasticities remain fairly constant across the various specifications of the LES that were considered.
ISSN:0014-2921
1873-572X
DOI:10.1016/0014-2921(78)90034-X