A Multi-Stage Almost Ideal Demand System: The Case of Beef Demand in Colombia

Sistema casi ideal de demanda multinivel: el caso de la demanda de carne de res en Colombia

The main objective in this paper is to obtain reliable long-term and shortterm elasticities estimates of the beef demand in Colombia using quarterly data since 1998 until 2007. However, complexity on the decision process of consumption should be taken into account, since expenditure on a particular good is sequential. In the case of beef demand in Colombia, a Multi-Stage process is proposed based on an Almost Ideal Demand System (AIDS). The econometric novelty in this paper is to estimate simultaneously all the stages by the Generalized Method of Moments to obtain a joint covariance matrix of parameter estimates in order to use the Delta Method for calculating the standard deviation of the long-term elasticities estimates. Additionally, this approach allows us to get elasticity estimates in each stage, but also, totalelasticities which incorporate interaction between stages. On the other hand, the short-term dynamic is handled by a simultaneous estimation of the Error Correction version of the model; therefore, Monte Carlo simulation exercises are performed to analyse the impact on beef demand because of shocks at different levels of the decision making process of consumers. The results indicate that, although the total expenditure elasticity estimate of demand for beef is 1.78 in the long-term and the expenditure elasticity estimate within the meat group is 1.07, the total short-term expenditure elasticity is merely 0.03. The smaller short-term reaction of consumers is also evidenced on price shocks; while the total own price elasticity of beef is -0.24 in the short-term, the total and within meat group long-term elasticities are -1.95 and -1-17, respectively.

El objetivo más importante de este artículo es obtener estimaciones confiables de las elasticidades de la demanda de carne de res en Colombia para el largo y corto plazo utilizando información trimestral desde 1998 hasta 2007. Sin embargo, las decisiones que toman los consumidores se enmarcan en un ambiente complejo, puesto que el gasto en un bien particular se realiza de forma secuencial. En el caso particular de la demanda de carne de res en la economía colombiana, se propone un Sistema Casi Ideal de Demanda Multinivel. La novedad econométrica en este artículo es estimar simulatáneamente todos los niveles del modelo mediante el Método Generalizado de los Momentos; esto permite obtener una matriz conjunta de covarianzas de todos los parámetros, y así utilizar el Método Delta para calcular las desviaciones estándar de las elasticidades estimadas de largo plazo. Adicionalmente, este enfoque nos permite obtener estimaciones de las elasticidades en cada nivel, pero también, elasticidades totales que incorporan la interacción entre los niveles. Por otra parte, la dinámica de corto plazo se estudia a través de la estimación conjunta de la versión en Corrección de Errores del modelo; de esta forma, ejercicios de simulación Monte Carlo son reaizados para analizar el impacto sobre la demanda de carne de res debido a perturbaciones en diferentes niveles del proceso de toma de decisiones de los consumidores. Los resultados indican que aunque en el largo plazo la elasticidad estimada de la demanda de carne de res con respecto al gasto total es 1.78, y la elasticidad estimada de la demanda con respecto al gasto en cárnicos es 1.07, la elasticidad de la demanda con respecto al gasto total en el corto plazo es solo 0.03. La reducida reacción en el corto plazo también está presente ante perturbaciones en el precio; mientras que la elasticidad precio propia total de la demanda de carne de res es 􀀀0:24 en el corto plazo, las elasticidades total y al interior del grupo de cárnicos para el largo plazo son -1.95 y -1.17, respectivamente.

A Multi-Stage Almost Ideal Demand System: The Case of Beef Demand in Colombia Sistema casi ideal de demanda multinivel: el caso de la demanda de carne de res en Colombia ANDRÉS RAMÍREZ¹

¹Universidad EAFIT, Departamento de Economía, Medellín, Colombia. Associate professor. Email: aramir21@eafit.edu.co

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Abstract

The main objective in this paper is to obtain reliable long-term and short-term elasticities estimates of the beef demand in Colombia using quarterly data since 1998 until 2007. However, complexity on the decision process of consumption should be taken into account, since expenditure on a particular good is sequential. In the case of beef demand in Colombia, a Multi-Stage process is proposed based on an Almost Ideal Demand System (AIDS). The econometric novelty in this paper is to estimate simultaneously all the stages by the Generalized Method of Moments to obtain a joint covariance matrix of parameter estimates in order to use the Delta Method for calculating the standard deviation of the long-term elasticities estimates. Additionally, this approach allows us to get elasticity estimates in each stage, but also, total elasticities which incorporate interaction between stages. On the other hand, the short-term dynamic is handled by a simultaneous estimation of the Error Correction version of the model; therefore, Monte Carlo simulation exercises are performed to analyse the impact on beef demand because of shocks at different levels of the decision making process of consumers. The results indicate that, although the total expenditure elasticity estimate of demand for beef is 1.78 in the long-term and the expenditure elasticity estimate within the meat group is 1.07, the total short-term expenditure elasticity is merely 0.03. The smaller short-term reaction of consumers is also evidenced on price shocks; while the total own price elasticity of beef is -0.24 in the short-term, the total and within meat group long-term elasticities are -1.95 and -1.17, respectively.

Key words: Cointegration, Delta method, Demand system, Generalized method of moments, Monte Carlo Simulation.

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Resumen

Palabras clave: cointegración, método delta, método generalizado de los momentos, simulación Monte Carlo, sistema de demanda.

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Texto completo disponible en PDF

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[Recibido en abril de 2012. Aceptado en abril de 2013]

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Este artículo se puede citar en LaTeX utilizando la siguiente referencia bibliográfica de BibTeX:

@ARTICLE{RCEv36n1a02,
    AUTHOR  = {Ramírez, Andrés},
    TITLE   = {{A Multi-Stage Almost Ideal Demand System: The Case of Beef Demand in Colombia}},
    JOURNAL = {Revista Colombiana de Estadística},
    YEAR    = {2013},
    volume  = {36},
    number  = {1},
    pages   = {23-42}
}

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