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Intertemporal substitution in import demand and habit formation

  • David De La Croix

    (National Fund for Scientific Research and IRES, University of Louvain, Place Montesquieu 3, B-3458 Louvain-la-Neuve, Belgium)

  • Jean-Pierre Urbain

    (Department of Quantitative Economics, University of Maastricht, PO Box 616, 6200 MD Maastricht, The Netherlands)

To study non-durable import demand, we extend previous work done by Clarida (1994) and Ceglowski (1991) by considering a two-good version of the lifecycle model in which we introduce time-non-separability in the households' preferences. The model is estimated using quarterly data for the USA and France. Using the information contained in the observed stochastic and deterministic trends, we derive a cointegration restriction used to estimate curvature parameters of the instantaneous utility function. The remaining parameters are estimated in a second step by GMM. The constancy of the different parameters is investigated, in both the long and the short run. Habit formation turns out to be an important factor of import demand. © 1998 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 13 (1998)
Issue (Month): 6 ()
Pages: 589-612

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Handle: RePEc:jae:japmet:v:13:y:1998:i:6:p:589-612
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