<p><a href="https://i.sstatic.net/ahzuJ.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/ahzuJ.png" alt="enter image description here" /></a>I am trying to calculate the price elasticity of demand for a product where I used the equation</p>
<p>log(volume) = elasticity * log(price) + seasonality dummies + trend index + CPI</p>
<p>Here CPI is the consumer price index, formula of CPI = (sum - price)/(price *n )] ,</p>
<p>price = price of the product ,sum = sum of all other product ,n = number of all other product</p>
<p>How can I add cross elasticity to the equation? Or have CPI covered it</p>

CC BY-SA 4.0
2020-11-22T07:31:33.317Z
This appears to be time-series data. Are all your variables, particularly volume, price, CPI stationary? Or are you assuming cointegration? Also what is trend index? Is it a variable for deterministic trend?
Dayne
CC BY-SA 4.0
2020-11-22T08:40:35.453Z
No the price and volume are not stationary, So basically I am calculating elasticity using linear regression, for which I have price and volume values monthly data for 3 years and where the trend index is just integers from 1 to 36 for say Jan 18 to dec 20, and I am also using  dummy variables for all months for seasonality.
Sameer
CC BY-SA 4.0
2020-11-22T09:10:53.893Z
In that case there is a problem in this regression because your regressors are non-stationary. The time index term would take care of the non-stationarity of the dependent variable (assuming it has only deterministic trend) but regressors are still a problem.
Dayne
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2020-11-22T12:30:07.497Z
for cross-elasticity you need prices of other specific good as well, CPI is not enough
csilvia
CC BY-SA 4.0
2020-11-24T07:58:36.413Z
I have updated the question, where you can see my modeling dataset for one product, so for trend and seasonality, I have added trend index and dummy variables for months. I wanted to find a better way to include the cross-price elasticity in the equation. Also I wanted to know if there's a better way than regression if regressors are still a problem? @csilvia
Sameer
<econometrics><elasticity><cross-price-elasticity>
How can I formulate price elasticity of demand equation when I want to add cross price elasticity?
Sameer
# How can I formulate price elasticity of demand equation when I want to add cross price elasticity?

(Asked by: username_0 on 2020-11-22)

[![enter image description here](https://i.sstatic.net/ahzuJ.png)](https://i.sstatic.net/ahzuJ.png)I am trying to calculate the price elasticity of demand for a product where I used the equation

log(volume) = elasticity \* log(price) + seasonality dummies + trend index + CPI

Here CPI is the consumer price index, formula of CPI = (sum - price)/(price \*n )] ,

price = price of the product ,sum = sum of all other product ,n = number of all other product

How can I add cross elasticity to the equation? Or have CPI covered it

**Tags:** econometrics, elasticity, cross-price-elasticity
> **Comments:**
> **username_1**: This appears to be time-series data. Are all your variables, particularly volume, price, CPI stationary? Or are you assuming cointegration? Also what is trend index? Is it a variable for deterministic trend?  
> **username_0**: No the price and volume are not stationary, So basically I am calculating elasticity using linear regression, for which I have price and volume values monthly data for 3 years and where the trend index is just integers from 1 to 36 for say Jan 18 to dec 20, and I am also using  dummy variables for all months for seasonality.  
> **username_1**: In that case there is a problem in this regression because your regressors are non-stationary. The time index term would take care of the non-stationarity of the dependent variable (assuming it has only deterministic trend) but regressors are still a problem.  
> **username_2**: for cross-elasticity you need prices of other specific good as well, CPI is not enough  
> **username_0**: I have updated the question, where you can see my modeling dataset for one product, so for trend and seasonality, I have added trend index and dummy variables for months. I wanted to find a better way to include the cross-price elasticity in the equation. Also I wanted to know if there's a better way than regression if regressors are still a problem? @csilvia  

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## 0 answers

