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HM Revenue and Customs Working Paper 7: Econometric Models of Alcohol Demand in the United Kingdom
This paper reports the results of a re-estimation of the alcohol demand models.
The objective of the study was to update the demand equations for alcoholic beverages in the UK with new observations, overcoming difficulties experienced in the previous attempts at re-estimation.
Four sets of empirical demand models have been built for on-trade beer, off-trade beer, spirits and wine, excluding coolers. The new models’ structure departs from the original AIDS specification, and follows a single-equation approach based on the standard consumer demand theory. Estimation and testing of the models have followed the widely practised general-to-specific econometric methodology, with application of unit root tests and co-integration techniques. The chosen models are dynamic error-correction models with broadly satisfactory diagnostic statistics, mostly sensible estimates of parameters, and generally clear economic interpretability.