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Time patterns in UK demand for alcohol and tobacco: an application of the EM algorithm

Mazzocchi, M. (2006) Time patterns in UK demand for alcohol and tobacco: an application of the EM algorithm. Computational Statistics & Data Analysis, 50 (9). pp. 2191-2205. ISSN 0167-9473

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To link to this item DOI: 10.1016/j.csda.2004.12.017


Capturing the pattern of structural change is a relevant task in applied demand analysis, as consumer preferences may vary significantly over time. Filtering and smoothing techniques have recently played an increasingly relevant role. A dynamic Almost Ideal Demand System with random walk parameters is estimated in order to detect modifications in consumer habits and preferences, as well as changes in the behavioural response to prices and income. Systemwise estimation, consistent with the underlying constraints from economic theory, is achieved through the EM algorithm. The proposed model is applied to UK aggregate consumption of alcohol and tobacco, using quarterly data from 1963 to 2003. Increased alcohol consumption is explained by a preference shift, addictive behaviour and a lower price elasticity. The dynamic and time-varying specification is consistent with the theoretical requirements imposed at each sample point. (c) 2005 Elsevier B.V. All rights reserved.

Item Type:Article
Divisions:Life Sciences > School of Agriculture, Policy and Development
ID Code:8895
Uncontrolled Keywords:almost ideal demand system, EM algorithm, time-varying parameters, addiction, COEFFICIENT REGRESSION-MODELS, MAXIMUM LIKELIHOOD, AIDS MODEL, SYSTEM

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