Demand system estimation in the absence of price data: an application of Stone-Lewbel price indices

This article evaluates the feasibility of estimating a system of demand equations in the absence of price information using the approach developed by Lewbel (1989). Stone-Lewbel (SL) price indices for commodity groups are constructed using information on the budget shares and the Consumer Price Indi...

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Bibliographic Details
Published in:Applied economics 2015-02, Vol.47 (6), p.553-568
Main Authors: Castellón, César E., Boonsaeng, Tullaya, Carpio, Carlos E.
Format: Article
Language:English
Subjects:
Applied economics
Commodities
Commodity prices
Consumer Expenditure Survey
Consumer Price Index
Demand
Demand analysis
Economic models
Estimates
Estimation
Exact Affine Stone Index demand model
food demand
Information analysis
Parameter estimation
Price theory
Prices
Studies
U.S.A
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Summary:This article evaluates the feasibility of estimating a system of demand equations in the absence of price information using the approach developed by Lewbel (1989). Stone-Lewbel (SL) price indices for commodity groups are constructed using information on the budget shares and the Consumer Price Indices (CPIs) of the goods comprising the commodity groups, which allows for household-level prices to be recovered. This study evaluates how susceptible are elasticities and marginal effects estimates from traditional parametric demand systems to the CPI used in the construction of the SL prices. To do this, three alternative regional CPIs are considered for the construction of the SL prices: monthly, quarterly and a constant (unity) price index. Elasticities and marginal effect estimates are computed for eight food commodity groups using the Exact Affine Stone Index (EASI) model as the parametric demand system and data from the United States Consumer Expenditure Survey. The estimates proved to be robust to the alternative regional CPIs considered in the construction of SL price indices, even to the absence of one. Hence, the results suggest that it is possible to accurately estimate a demand system even in the absence of price information.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2014.975332