Full text: Study week on the econometric approach to development planning

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 
Stone - pag. 52 
21 + (0 L'oC1) Ya

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