Separable Almost Ideal Demand System, A

The necessary and sufficient conditions for direct weak separability are used to derive restrictions on the parameters of the Almost Ideal (AI) demand system, yielding a systematic way of restricting the parameter space that may be useful for estimating large demand systems. The proposed method is illustrated with an application to Canadian demand, with emphasis on root consumption. A 15-good, complete AI demand system subject to nonlinear separability restrictions was estimated by using an efficient minimum distance procedure. The results provide support for a parsimonious separable structure, and show that estimated food demands are inelastic with respect to both own price and income, and that substitution possibilities between foods are limited.