Estimation and hypothesis testing in dynamic singular equation systems: an application to consumers expenditure in Greece

Abstract

Restrictions on systems of demand equations have been traditionally tested using static models. The
usual results of these tests are a rejection of the restrictions imposed by the economic theory. A possible
explanation of these findings is inadequate dynamic specification of the demand functions. This paper
estimates a vector time series model of expenditure shares in the context of a singular dynamic demand
system. The model allows for non-symmetric and non-homogeneous short run behaviour. The homogeneity
and symmetry restrictions are only examined in the long run structure. Results based on Greek time
series data are presented and reject the static modelling while restrictions suggested by economic theory
are not rejected when imposed on the long run structure.