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Short-Run Demand Relationships in the U.S. Fats and Oils Complex

  • Goodwin, Barry K.
  • Harper, Daniel C.
  • Schnepf, Randall D.

Fats and oils play a prominent role in U.S. dietary patterns. Recent concerns over the negative health consequences associated with fats and oils have led many to suspect structural change in demand conditions. Our analysis considers short run (monthly) demand relationships for edible fats and oils. In that monthly quantities of fats and oils are likely to be relatively fixed, an inverse almost ideal demand system specification is used. A smooth transition function is used to model a switching inverse almost ideal demand system that assesses short-run demand conditions for edible fats and oils in the United States. The results suggest that short-run demand conditions for fats and oils experienced a gradual structural shift that began in the late 1980s or early 1990s and persisted into the mid-1990s. Although this shift generally made price flexibilities more elastic, differences in scale flexibilities across regimes were modest in most cases. The results suggest that decreases in marginal valuations for most fats and oils in response to consumption increases are rather small. Scale flexibilities are relatively close to -1, suggesting near homothetic preferences for fats and oils.

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File URL: http://purl.umn.edu/37858
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Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 01 (April)
Pages:

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Handle: RePEc:ags:joaaec:37858
Contact details of provider: Web page: http://www.saea.org/jaae/jaae.htm
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  1. E. W. Goddard & S. Glance, 1989. "Demand for Fats and Oils in Canada, United States and Japan," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 37(3), pages 421-443, November.
  2. Hoanjae Park & Walter N. Thurman, 1999. "On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 950-958.
  3. Holt, Matthew T & Goodwin, Barry K, 1997. "Generalized Habit Formation in an Inverse Almost Ideal Demand System: An Application to Meat Expenditures in the U.S," Empirical Economics, Springer, vol. 22(2), pages 293-320.
  4. Hicks, J. R., 1986. "A Revision of Demand Theory," OUP Catalogue, Oxford University Press, number 9780198285502.
  5. Moschini, GianCarlo & Meilke, Karl D., 1989. "Modeling the Pattern of Structural Change in U.S. Meat Demand," Staff General Research Papers 11266, Iowa State University, Department of Economics.
  6. Ray, Ranjan, 1984. "A dynamic generalisation of the almost ideal demand system," Economics Letters, Elsevier, vol. 14(2-3), pages 235-239.
  7. Eales, James S. & Unnevehr, Laurian J., 1994. "The inverse almost ideal demand system," European Economic Review, Elsevier, vol. 38(1), pages 101-115, January.
  8. Tsurumi, Hiroki & Wago, Hajime & Ilmakunnas, Pekka, 1986. "Gradual switching multivariate regression models with stochastic cross-equational constraints and an application to the Klem translog production model," Journal of Econometrics, Elsevier, vol. 31(3), pages 235-253, April.
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