Demand Systems with Heteroscedastic Disturbances

40 Pages Posted: 25 Oct 2018

See all articles by Apostolos Serletis

Apostolos Serletis

University of Calgary - Department of Economics

Libo Xu

University of San Francisco - Department of Economics

Date Written: September 25, 2018

Abstract

We address the estimation of singular demand systems with heteroscedastic disturbances. We relax the homoscedasticity assumption and instead assume that the covariance matrix of the errors of the demand system is time-varying. In doing so, we consider the VECH and BEKK parameterizations of the variance model. We analytically prove the invariance of the maximum likelihood estimator with respect to the choice of the good deleted from a singular demand system, and also prove a number of important practical results regarding how to recover the mean and variance equation parameters (and their standard errors) of the full demand system from those of any subsystem obtained by deleting an arbitrary good.

Keywords: Flexible functional forms; Demand systems; Volatility

JEL Classification: C32; E52; E44

Suggested Citation

Serletis, Apostolos and Xu, Libo, Demand Systems with Heteroscedastic Disturbances (September 25, 2018). Empirical Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3258878

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

Libo Xu

University of San Francisco - Department of Economics ( email )

2130 Fulton Street
San Francisco, CA 94117-1080
United States

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