A Common Dynamic AIDS Model for the Nordic Countries

Abstract

In the previous two chapters we discussed the economic and econometric prerequisites that are necessary if we are to be able to obtain good estimates of a demand system. As we have seen, the choice of functional form is only partially determined by economic theory, that is we require that the demand system should be derived from an expenditure function (or equivalently, a utility function) with certain desirable properties, at least at the micro-level. A broad class of functions satisfy these conditions, amongst them such flexible functional forms as the Translog functions and Deaton and Muellbauer’s (1980b) Almost Ideal Demand System (AIDS).