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Post-War Consumption in Canada: A First Look at the Aggregates*

Published online by Cambridge University Press:  07 November 2014

Alan Powell
Alan Powell*
Affiliation:
Monash University, Australia
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Extract

This paper is a preliminary report of a study of post-war patterns of aggregate consumption in Canada. The data consist of the eight gross categories of personal consumption recorded in the official statistics, and the corresponding price indicators. A fifteen-yeai time-series spanning the years 1949 to 1963 has been used to fit a complete system of consumer demand equations for the eight categories using a method more fully reported elsewhere. Basically, this method makes the simplest plausible assumption about the form of the utility function, namely, that of “directly additive preferences,” and utilizes the consequent dependence between substitution and income effects to sharpen the specification of the model. In the absence of such specifying restrictions, analysis of short time series is not likely to prove very fruitful.

It is not claimed that “directly additive preferences” provides the optimum set of restrictions (though it certainly provides the simplest). More sophisticated utility schemes, such as Mr. Barten's “almost-additive” preference concept, are likely to yield more reliable results. In this sense, the present report is preliminary. There are also other areas even within the framework of additive preferences in which further improvements could be sought; some of these are indicated later. Finally, the available arbitrary classification of consumption expenditure is in no sense ideal.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 31 , Issue 4 , November 1965 , pp. 559 - 565
Copyright
Copyright © Canadian Political Science Association 1965

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Footnotes

*

The research reported here was completed while the author held the University of Chicago's Post-doctoral Fellowship in Political Economy. Computations were financed, in part, by the National Science Foundation.

References

1 For consumption and population data, see: Dominion Bureau of Statistics, National Accounts—Income and Expenditure (Ottawa, 1963 Google Scholar, and earlier annual editions), Table 47 and Appendix, Table 1. Seven components of the Consumer Price Index are tabulated by the Dominion Bureau of Statistics, in the official yearbook, Canada 1963 (Ottawa).Google Scholar A disaggregation of the indicator for the price of “Housing” into components “Shelter” and “Household Expenses” may be obtained from the Bank of Canada's Statistical Summary, Supplement 1963 (Ottawa), 133.Google Scholar

2 Powell, Alan, “A Complete System of Consumer Demand Equations for the Australian Economy Fitted by a Model of Additive Preferences,” Econometrica, 34, no. 3 (07 1966) (in press).CrossRefGoogle Scholar

3 Houthakker, H. S., “Additive Preferences,” Econometrica, 28, n. 2 (04 1960), 244–57.CrossRefGoogle Scholar

4 Barten, A. P., “Consumer Demand Functions under Conditions of Almost Additive Preferenees,” Econometrica, 32, no. 1–2 (01–April 1964), 1–38.CrossRefGoogle Scholar

5 For a fuller account, see Powell, “A Complete System.”

6 Leser, C. E. V., “Commodity Group Expenditure Functions for the United Kingdom, 1948–1957,” Econometrica, 29, no. 1 (01 1961), 24–32.CrossRefGoogle Scholar

7 Houthakker, “Additive Preferences.”

8 Powell, “A Complete System.”

9 This interpretation, drawn from a similar variable in a related model, is due to Richard Stone. See his “Linear Expenditure Systems and Demand Analysis: An Application to the British Pattern of Demand,” Economic Journal, 64, no. 255 (09 1954), 511–27.CrossRefGoogle Scholar

10 Frisch, Ragnar, “A Complete Scheme for Computing All Direct and Cross Demand Elasticities in a Model of Many Sectors,” Econometrica, 27, no. 2 (04 1959), 177–96.CrossRefGoogle Scholar

11 See, e.g., Johnston, J., Econometric Methods (New York, 1963), 192 ff.Google Scholar

12 Zellner, Arnold, “An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests for Aggregation Bias,” Journal of the American Statistical Association, 57, no. 298 (06 1962), 348–68.CrossRefGoogle Scholar

13 Ibid., 351.

14 The above treatment glosses over the problem that in equation (1), as it is written, at least one of the ϵ i t cannot be a random variable since the sum over commodities of these disturbances must vanish identically at any given date.

15 As a result of the structural interdependence in this model, the price elasticity estimated for personal and medical expenses also has the “wrong” sign.

16 For example, see Powell, “A Complete System,” Barten, “Consumer Demand Functions,” and Leser, “Commodity Group Expenditure Functions.”

17 See Powell, “A Complete System,” Leser, “Commodity Group Expenditure Functions,” and Donald, James R., Lowenstein, Frank, and Simon, Martin S., The Demand for Textile Fibres in the United States, USDA Technical Bulletin no. 1301 (Washington, 1963), 99.Google Scholar

18 See Frisch, Ragnar, “Dynamic Utility,” Econometrica, 32, no. 3 (07 1964), 418–24 (esp. 422)CrossRefGoogle Scholar; and Powell, “A Complete System.”