PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28
The results of fitting the model consisting of (IV. 20),
(IV. 21) and (IV. 22) to annual data for Britain relating to
eight main commodity groups from 1900 to 1960 are given
in [45]. On the whole the fit is good, and in two cases where
comparisons were easy to make, namely food and clothing, we
found close agreement between the total expenditure elasticities
derived from the model and the corresponding estimates derived
independently from family budgets. A still better fit was
obtained with quadratic trends in b and ¢ [39]. But such
simple trends are certainly not ideal for projection purposes
and we are now working on more complicated varieties.
The model can be fitted simultaneously to time series and
budgets [39] and can be generalised to cover adaptive beha-
viour, that is gradual responses to changes in circumstances
71 [35]
The model is decomposable and so can be applied hierarch-
ically. This means that we can start with an analysis of main
groups, then analyse separately the sub-groups of these main
groups, then the sub-groups of the sub-groups ,and so on [7].
At each stage we can check on the performance of the model.
This is necessary because we may expect that its performance
will get worse as we go into greater and greater detail unless
we are able to take the special features of individual markets
into account. As with other parts of the main model, we are
working at present on improving it, and are trying to obtain
outside comments on the projections it yields.
This brings me to the second requirement: estimates of
future prices. We start with an extrapolation of current price-
trends and adjust the base-year expenditure to allow for this
change in prices. This adjustment is based on the constant-
utility price-index implied by the model [19], which can be
written in the form p*,/p, where
‘IV. 25) ur
I
Stone - pag. 52
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