Abstract
In a recent paper, Hayes, Molina and Slottje (1988) examined the question of preference variation across North America. As the economy of the United States becomes a more open economy and less immune to fluctuations in international markets, the impact of relative price changes of foreign commodities on domestic economic well-being will be of increasing interest. Earlier studies have focused on the welfare impact of foreign price changes (cf Thursby (1981)). In this chapter, potential secondary utility effects of foreign prices are examined, the chapter follows Hayes, Molina and Slottje (1988).
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In general, this system does not possess the Slutsky (1915) properties. To impose these properties requires the restriction σij = σ
Maximum likelihood estimators of coefficients and variance matrix Q (n) are obtained by grid search over a family of autoregressive models of the random disturbances in (6.9), a distinct estimate being obtained for each specification in that family. The behavioral theory of random taste-changes underlying the specification of serial correlation hypotheses is given in a recent article (Basmann, 1985). Only two of the assumptions of that theory (Basmann, 1985, pp. 199–202) were used in obtaining the estimates shown in Tables 6.1–6.4 here. They imply that the random disturbances η<Stack><Subscript>i</Subscript><Superscript>(k)</Superscript></Stack> , k = 1,..., n - 1 follow a first-order autoregressive process. Consequently, the grid search for ML test statistics and estimators is over the interval -1 < p < 1.
The samples are
• Mexico: 1947 – 1962 and 1963 – 1978.
• Canada: 1949 – 1966 and 1967 – 1983.
• U.S.: 1947 – 1964 and 1965 – 1981.
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© 1988 Springer Science+Business Media New York
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Basmann, R.L., Slottje, D.J., Hayes, K., Johnson, J.D., Molina, D.J. (1988). Cross Country Comparisons. In: The Generalized Fechner-Thurstone Direct Utility Function and Some of its Uses. Lecture Notes in Economics and Mathematical Systems, vol 316. Springer, New York, NY. https://doi.org/10.1007/978-1-4684-9401-3_6
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DOI: https://doi.org/10.1007/978-1-4684-9401-3_6
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