ESTIMATION OF A CONTINUOUS-TIME DYNAMIC DEMAND SYSTEM

A continuous-time dynamic model of consumers' demand, explicitly taking account of the roles of depreciation, interest rates, habits, and stocks, is estimated using recently developed techniques from discrete quarterly UK data on three broad commodity groupings. The results suggest that, whilst being a significant determinant of demand, the actual magnitude of the influence of changes in interest rates may be relatively small in the long run. The cross-price effects of durable goods are also found to be statistically significant, and symmetry of long-run compensated price responses is not rejected.