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A Theory of Serial Correlation of Stochastic Taste Changers in Direct Utility Functions

Published online by Cambridge University Press:  18 October 2010

Robert L. Basmann
Robert L. Basmann
Affiliation:
Texas A&M University and Advanced Econometrics, Inc.
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Abstract

Methods of maximum-likelihood search (eg., Hildreth-Lu) for single equations models with autocorrelated disturbances are not easily extended to the multi-equation systems encountered in econometric studies of consumer demand. The obstacle is the large dimension of the space of independent serial correlation coefficients to be partitioned and searched. This paper treats stochastic disturbance vectors in demand/expenditure systems as functions of random disturbances in consumer utility functions. It specifies marginal utilities to be products of a systematic function and a nonnegative random disturbance. Under this specification, three hypotheses that readily come to mind in the context of consumer theory drastically reduce the number of independent elements of serial covariance matrices. This in turn makes practicable the extension of maximum-likelihood search methods in the estimation of parameters of large demand systems.

Type
Articles
Information
Econometric Theory , Volume 1 , Issue 2 , August 1985 , pp. 192 - 210
Copyright
Copyright © Cambridge University Press 1985

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