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Intertemporal substitution in import demand and habit formation

Author

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  • 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)

Abstract

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.

Suggested Citation

  • David De La Croix & Jean-Pierre Urbain, 1998. "Intertemporal substitution in import demand and habit formation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(6), pages 589-612.
  • Handle: RePEc:jae:japmet:v:13:y:1998:i:6:p:589-612
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    Cited by:

    1. T. Huw Edwards, 2006. "Search and the Path-Dependency of Trade," Discussion Paper Series 2006_12, Department of Economics, Loughborough University, revised May 2006.
    2. Pavel Kadochnikov, 2006. "An Analysis of Import Substitution in Russia after the 1998 Crisis," Research Paper Series, Gaidar Institute for Economic Policy, issue 95, pages 148-148.
    3. Luca Gori & Mauro Sodini, 2014. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 159-179, April.
    4. Croix de la, D. & Urbain, J.R.Y.J. & Palm, F.C., 1996. "Labor market dynamics when effort depends on wage growth comparisons," Research Memorandum 028, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    5. Shin-Ichi Nishiyama, 2005. "The cross-Euler equation approach to intertemporal substitution in import demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 841-872.
    6. Bernardina Algieri, 2011. "Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors," Empirical Economics, Springer, vol. 41(3), pages 593-637, December.
    7. Farzana Naheed Khan & Eatzaz Ahmad, 2022. "Intertemporal substitution in import demand and the role of habit formation: an application of Euler equation approach for Pakistan," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(1), pages 95-124, January.
    8. Georgy Idrisov, 2010. "Factors of Demand for Imported Goods for Investment Purpose to Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 138P.
    9. de la Croix, David, 2001. "Growth dynamics and education spending: The role of inherited tastes and abilities," European Economic Review, Elsevier, vol. 45(8), pages 1415-1438, August.
    10. Gary Wong, 2001. "Towards A More General Approach To Testing The Time Additivity Hypothesis," School of Economics and Finance Discussion Papers and Working Papers Series 098, School of Economics and Finance, Queensland University of Technology.
    11. Bernardina Algieri, 2014. "Drivers of Export Demand: A Focus on the GIIPS Countries," The World Economy, Wiley Blackwell, vol. 37(10), pages 1454-1482, October.
    12. Urbain, Jean-Pierre, 1996. "Japanese import behavior and cointegration: A comment," Journal of Policy Modeling, Elsevier, vol. 18(6), pages 583-601, December.
    13. de Miguel, Carlos & Manzano, Baltasar, 2011. "Green tax reforms and habits," Resource and Energy Economics, Elsevier, vol. 33(1), pages 231-246, January.
    14. M. Shahe Emran & Forhad Shilpi, 2001. "Foreign Trade Regimes and Import Demand Function: Evidence from Sri Lanka," International Trade 0012002, University Library of Munich, Germany, revised 04 Apr 2002.
    15. Jordi Caballé & Ana I. Moro-Egido, 2015. "On the Accumulation of Wealth under Aspirations," Working Papers 826, Barcelona School of Economics.
    16. Chuanglian Chen & Guojin Chen & Shujie Yao, 2011. "Do Imports Crowd Out Domestic Consumption? A Comparative Study of China, Japan and Korea," Discussion Papers 11/03, University of Nottingham, GEP.
    17. Algieri, Bernardina, 2010. "Income and Price Elasticities of the Italian Exports in Tourism Services - Elasticità rispetto al reddito e ai prezzi relativi delle esportazioni italiane di servizi turistici," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 63(4), pages 381-405.
    18. CHEN, Chuanglian & CHEN, Guojin & YAO, Shujie, 2012. "Do imports crowd out domestic consumption? A comparative study of China, Japan and Korea," China Economic Review, Elsevier, vol. 23(4), pages 1036-1050.

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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