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A nonparametric analysis of habits models

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Author Info
Ian Crawford () (Institute for Fiscal Studies and University of Oxford)

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Abstract

This paper presents a nonparametric analysis of the canonical habits model. The approach is based on the combinatorial/revealed preference framework of Samuelson (1948), Houthakker (1950), Afriat (1967) and Varian (1982) and the extenstion and application of these ideas to intertemporal models in Browning (1989). It provides a simple finitely computable test of the model which does not require a parameterisation of the underlying (hypothesised) preferences.It also yields set identification of important features of the canonical habits model including the consumer's rate of time preference and the welfare effects of habit-formation. The ideas presented are illustrated using Spanish panel data.

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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP30/07.

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Date of creation: Dec 2007
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Handle: RePEc:ifs:cemmap:30/07

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  1. Kubler, Felix, 2004. "Is intertemporal choice theory testable?," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 177-189, February. [Downloadable!] (restricted)
  2. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July. [Downloadable!] (restricted)
  3. Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June. [Downloadable!] (restricted)
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  4. Martin Browning & M. Dolores Collado, 2004. "Habits and Heterogeneity in Demands: a Panel Data Analysis," CAM Working Papers 2004-18, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
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  5. Spinnewyn, Frans, 1981. "Rational habit formation," European Economic Review, Elsevier, vol. 15(1), pages 91-109. [Downloadable!] (restricted)
  6. Raquel Carrasco & José M. Labeaga & J. David López-Salido, 2005. "Consumption and Habits: Evidence from Panel Data," Economic Journal, Royal Economic Society, vol. 115(500), pages 144-165, 01. [Downloadable!] (restricted)
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  7. Labeaga, Jose M., 1999. "A double-hurdle rational addiction model with heterogeneity: Estimating the demand for tobacco," Journal of Econometrics, Elsevier, vol. 93(1), pages 49-72, November. [Downloadable!] (restricted)
  8. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140. [Downloadable!] (restricted)
  9. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju. [Downloadable!] (restricted)
  10. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April. [Downloadable!] (restricted)
  11. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September. [Downloadable!] (restricted)
  12. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January. [Downloadable!] (restricted)
  13. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis. [Downloadable!]
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