The examination of the validity of the Divisia price index for the almost ideal demand system model: Some Monte Carlo results

Abstract

In this paper, we have investigated about the validity of an exact price index suggested by Feenstra and Reindorf (2000) in the almost ideal demand (AID) system model. This index can express by the use of the Divisia index with the weighted shares, and it has been evaluated using data on the expenditure shares and prices at two data points. Our Monte Carlo experiments show that the Divisia index does not perform so suitable estimates in any design. And then we find that the Divisia index would yield the poor estimates against the AID price index.Demand system AID model Divisia price index