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Engel Curves Specification in an Artificial Model of Consumption Dynamics with Socially Evolving Preferences

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  • Giorgio Fagiolo

Abstract

In studying individual consumption behavior, an important issue is the analysis of the relation between commodity expenditure and income (or total expenditure). In this paper we firstly review the more recent theoretical and empirical literature attempting to: (i) derive theory-consistent demand systems models which are able to account for empirically observed non-linearities in total expenditure; (ii) find out whether there exist necessary and sufficient conditions on the across-households distributions such that empirically obtained demand functions still preserve a strong consistency between micro and macro parameters (e.g. consumption-income elasticities). We then apply the techniques discussed in the first part of the paper to the data generated by a computer-simulated model of consumption dynamics presented in Aversi et al. (1999). We find that the model, under a large range of parametrizations, is pretty well equipped to replicate most of the stylized facts displayed by empirically observed consumption patterns, both cross-section and across time.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2001/16.

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Date of creation: 27 Dec 2001
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Handle: RePEc:ssa:lemwps:2001/16

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Keywords: Household Behavior; Consumption; Demand; Engel Curves; Socially Evolving Preferences; Dynamics.;

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References

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  1. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
  2. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839 Elsevier.
  3. Hardle, W., 1992. "Applied Nonparametric Methods," Papers 9204, Catholique de Louvain - Institut de statistique.
  4. HÄRDLE, Wolfgang & JERISON, Michael, . "Cross section Engel curves over time," CORE Discussion Papers RP -991, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  6. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie 9312, Humboldt Universitaet Berlin.
  7. Izan, Haji Y., 1980. "To pool or not to pool? : A reexamination of Tobin's food demand problem," Journal of Econometrics, Elsevier, vol. 13(3), pages 391-402, August.
  8. Anderson, Heather M & Vahid, Farshid, 1997. "On the Correspondence between Individual and Aggregate Food Consumption Functions: Evidence from the USA and the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(5), pages 477-98, Sept.-Oct.
  9. J. A. Hausman & W. K. Newey & J. L. Powel, 1988. "Nonlinear Errors in Variables: Estimation of Some Engel Curves," Working papers 504, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Barnett, William A, 1983. "New Indices of Money Supply and the Flexible Laurent Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(1), pages 7-23, January.
  11. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  12. Maddala, G S, 1971. "The Likelihood Approach to Pooling Cross-Section and Time-Series Data," Econometrica, Econometric Society, vol. 39(6), pages 939-53, November.
  13. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  14. Stoker, Thomas M, 1986. "Simple Tests of Distributional Effects on Macroeconomic Equations," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 763-95, August.
  15. Lewbel, Arthur, 1992. "Aggregation with Log-Linear Models," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 635-42, July.
  16. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
  17. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  18. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  19. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-83, June.
  20. Blundell, Richard & Ray, Ranjan, 1984. "Testing for Linear Engel Curves and Additively Separable Preferences Using a New Flexible Demand System," Economic Journal, Royal Economic Society, vol. 94(376), pages 800-811, December.
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Cited by:
  1. Shiyuan Chen & Sally Wallace, 2009. "Food Consumption in Jamaica: A Household and Social Behavior," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0901, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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