Empirical Economics

, Volume 22, Issue 2, pp 293–320 | Cite as

Generalized habit formation in an Inverse Almost Ideal Demand System: An application to meat expenditures in the U.S.

  • Matthew T. Holt
  • Barry K. Goodwin
Article

Abstract

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.

Keywords

IAIDS Habit Formation Distance Function Long Memory Meat Demand Misspecification Tests 

JEL Classification System-Numbers

C51 C52 D12 Q11 

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Copyright information

© Physica-Verlag 1997

Authors and Affiliations

  • Matthew T. Holt
    • 1
  • Barry K. Goodwin
    • 1
  1. 1.Department of Agricultural and Resource Economics at North Carolina State UniversityRaleighUSA

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