## A Multi-Stage Almost Ideal Demand System: the case of beef demand in Colombia

##### Abstract

The main objective in this paper is to obtain reliable long-term and
short-term elasticities estimates of the beef demand in Colombia using
quarterly data since 1998 until 2007. However, complexity on the decision
process of consumption should be taken into account, since expenditure
on a particular good is sequential. In the case of beef demand in Colom-
bia, a Multi-Stage process is proposed based on an Almost Ideal Demand
System (AIDS). The econometric novelty in this paper is to estimate si-
multaneously all the stages by the Generalized Method of Moments to
obtain a joint covariance matrix of parameters estimates in order to use
the Delta Method for calculating the standard deviation of the long-term
elasticities estimates. Additionally, this approach allows us to get elastic-
ities estimates in each stage, but also, total elasticities which incorporates
interaction between stages. On the other hand, the short-term dynamic is
handled by a simultaneous estimation of the Error Correction version of
the model; therefore, Monte Carlo simulation exercises are performed to
analyse the impact on beef demand because of shocks at di erent levels
of the decision making process of consumers. The results indicate that,
although the total expenditure elasticity estimate of demand for beef is
1.78 in the long-term and the expenditure elasticity estimate within the
meat group is 1.07, the total short-term expenditure elasticity is merely
0.03. The smaller short-term reaction of consumers is also evidenced on
price shocks; while the total own price elasticity of beef is -0.24 in the
short-term, the total and within meat group long-term elasticities are -
1.95 and -1.17, respectively.

##### Abstract

The main objective in this paper is to obtain reliable long-term and
short-term elasticities estimates of the beef demand in Colombia using
quarterly data since 1998 until 2007. However, complexity on the decision
process of consumption should be taken into account, since expenditure
on a particular good is sequential. In the case of beef demand in Colom-
bia, a Multi-Stage process is proposed based on an Almost Ideal Demand
System (AIDS). The econometric novelty in this paper is to estimate si-
multaneously all the stages by the Generalized Method of Moments to
obtain a joint covariance matrix of parameters estimates in order to use
the Delta Method for calculating the standard deviation of the long-term
elasticities estimates. Additionally, this approach allows us to get elastic-
ities estimates in each stage, but also, total elasticities which incorporates
interaction between stages. On the other hand, the short-term dynamic is
handled by a simultaneous estimation of the Error Correction version of
the model; therefore, Monte Carlo simulation exercises are performed to
analyse the impact on beef demand because of shocks at di erent levels
of the decision making process of consumers. The results indicate that,
although the total expenditure elasticity estimate of demand for beef is
1.78 in the long-term and the expenditure elasticity estimate within the
meat group is 1.07, the total short-term expenditure elasticity is merely
0.03. The smaller short-term reaction of consumers is also evidenced on
price shocks; while the total own price elasticity of beef is -0.24 in the
short-term, the total and within meat group long-term elasticities are -
1.95 and -1.17, respectively.