WP 2020-81 On the estimation of Engel curves for a micro-macro interface loop of two economic simulation models

Abstract

This paper provides a thorough report of the estimation process of Engle Curves in the context of a research project articulating microsimulation with macroeconomic modelling. We present the detailed results after setting up the stage of the broader project where households· behavior is to be represented by sets of elasticities by groups of cells. A first part describes the broader project in order to better assess the role of this estimation step. Once this is accomplished we present the model and data and then the results are presented and discussed. The models estimated in this paper are Engel curves on a set of consumption bundles consistent with the macroeconomic model consumption module. The set of consumption items regroup 14 goods and services. This is a relatively large system with many durables, services and a few non-durables. We present many shortcomings that we had to bypass, thus justifying the present results which are theoretically set by Lewbel (2006), Leser (1963) and Working (1943). We then present the model we have retained to estimate. We then derive the elasticities that are functions of the coefficients. We propose thereafter methods to estimate standard-errors for elasticities. The estimation results are finally discussed and we sketch improvements for further research.