Generalized habit formation in an Inverse Almost Ideal Demand System: An application to meat expenditures in the U.S.
- Matthew T. HoltAffiliated withDepartment of Agricultural and Resource Economics at North Carolina State University
- , Barry K. GoodwinAffiliated withDepartment of Agricultural and Resource Economics at North Carolina State University
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The Inverse Almost Ideal Demand System (IAIDS) model of Moschini and Vissa (1992) and Eales and Unnevehr (1994) is extended to include: (1) general, nonlinear, nonadditive habit effects; and (2) a specification for habit stock terms that allows purchases from the distant past to influence current consumption (long memory). The resulting models are compared with a linear habit effects model and a static specification. The empirical estimation is on U.S. quarterly meat expenditures (1961–1993), with each model being subjected to a battery of misspecification tests. Results of these tests, along with tests of homogeneity and symmetry restrictions, indicate clearly that the most generalized dynamic specification-the one with nonlinear, nonadditive long-memory habit stock effects-is preferred. Furthermore, persistence effects are found to be qualitatively important in that flexibility, consumption scale, and habit flexibility estimates differ, in some instances substantially, between alternative specifications.
KeywordsIAIDS Habit Formation Distance Function Long Memory Meat Demand Misspecification Tests
JEL Classification System-NumbersC51 C52 D12 Q11
- Generalized habit formation in an Inverse Almost Ideal Demand System: An application to meat expenditures in the U.S.
Volume 22, Issue 2 , pp 293-320
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- Habit Formation
- Distance Function
- Long Memory
- Meat Demand
- Misspecification Tests
- Industry Sectors