A Globally Flexible, Almost Ideal Demand System

Abstract

The almost ideal demand system is combined with the Fourier expenditure system. Subject to the assumption that preferences are of the price-independent, generalized-logarithmic class, the resulting demand system has the desirable features of each of its components. Aggregate demand equations are consistent with preferences of a representative consumer, and consistent estimates of elasticities are obtained for all observed prices. Application of the new demand system to U.S. consumption of meats and fish reveals that it fits the data well and that the restriction to the usual specification is rejected.

KEY WORDS:

• Meat and fish consumption
• Flexible functional forms
• Fourier flexible form
• Consumer demand