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Money illusion, Gorman and Lau

Author

Listed:
  • Colby, Scott
  • Tim, Graciano
  • Jeffrey, LaFrance
  • Rulon, Pope
Abstract
Any demand equation satisfying Lau’s (1982) Fundamental Theorem of Exact Aggregation and is 0° homogeneous in prices and income will have a Gorman (1981) functional form for each income term. This property does not depend on symmetry or adding up. The implications of this result are illustrated by an extensive example.

Suggested Citation

  • Colby, Scott & Tim, Graciano & Jeffrey, LaFrance & Rulon, Pope, 2011. "Money illusion, Gorman and Lau," MPRA Paper 32709, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:32709
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    References listed on IDEAS

    as
    1. Howe, Howard & Pollak, Robert A & Wales, Terence J, 1979. "Theory and Time Series Estimation of the Quadratic Expenditure System," Econometrica, Econometric Society, vol. 47(5), pages 1231-1247, September.
    2. Lau, Lawrence J., 1982. "A note on the fundamental theorem of exact aggregation," Economics Letters, Elsevier, vol. 9(2), pages 119-126.
    3. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-999, September.
    4. Lewbel, Arthur, 1990. "Full Rank Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 289-300, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Demand; exact aggregation; functional form; homogeneity;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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