International Center for the Study of East-Asian Development

Medium-Term Estimation of the Almost Ideal Demand System in Japan.

Email address: movshuk@icsead.or.jp

Keywords: detrending; spectral analysis; Hodrick-Prescott filter; Baxter-King filter; Gibbs effect; Almost Ideal Demand System.

JEL Classifications: C22, E32, D12.

Abstract:
This paper defines the medium term as the residual component of time series after extracting secular trend and seasonal variation. To select an optimal detrending method, the paper applies a distance metric (integrated mean squared error), which measures the distortionary effect of linear filters on the spectrum of detrended time series. The metric identified substantial distortions of conventional detrending methods (including first-differencing and deterministic linear detrending), and singled out the Hodrick-Prescott and Baxter-King filters as the least-distorting ones. The paper illustrates the consequences of alternative detrending approaches by estimating the Almost Ideal Demand System in Japan.

PDF file of paper: movshuk.pdf

Session: Filtering and Forecasting

Time: Friday, 6 July, 8:45am - 10:15am

Room: C