Age, Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns

A quadratic almost ideal demand system allowing for age, cohort, and trend effects is developed at the macro level. The model is estimated by maximum likelihood, using a three-tier iterative/search method applied to pooled 1961–1992 time series for five regions of Canada and six categories of expenditure. Hypothesis tests indicate support for the model specification. Elasticities are compared with those reported in other studies, with special attention to food. Effects of demographic and trend variables on elasticities and expenditure shares are investigated. An overall conclusion is that such effects can be very important in a macro demand system.