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International Journal of Innovation and Research in Educational Sciences

Utility Modelling by Comparative Static and Dynamic Analysis

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Utility, Model, Static, Dynamic, Analysis
  • Paurom, Ferdinand C.
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This article investigates the legitimacy of the consumer equilibrium hypothesis within the context of a comparative static and dynamic evidence of equi-marginal theory. The principal aim is to develop a model that determine the likelihood of consumer equilibrium to be either constant or flux over time. On this account, equilibrium position between two interval period. Set against the first model (1980-1998) which uncovered an equilibrium value λ = 0.438 (Paurom, 2012), the second model (2000-2012) replicated significantly the same value = 0.427. The marginal utilities of pork and beef moved continually in an anticipated opposite direction in the short run and converged to a constant value somewhere around .438 and .427 over the long run. The model is robust as the variables are cointegrated at level using augmented Dickey-Fuller (ADF) unit root test. The cointegrating model has both long run and short run causality. The speed at which the regression model corrects the short run disequilibrium is 8.76 percent annually. The residuals of the model are homocedastic, serially uncorrelated, and are not grossly non-normal. The contrived regression forecast model demonstrates higher predictive power than the log-linear models, autoregresssive model (AR), vector error correction model (VECM), and ADF test equation. The persistent and continuous comovement of marginal utilities adjusting to random macroeconomic shocks and consistently revert to the equilibrium demonstrates could be essentially credited to the natural level of utility innate in each consumer. In the light of its potential application to various field of scientific inquiry, the research recommended for defining the restrictions that ought to be imposed in utilizing VECM, VAR and other models to forecast future events. It is also recommended that the procedure adopted in the static model as a way of developing a contrived forecast model should be used as a reason for developing forecast models that may be considerably more exact than the VECM and AR.

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