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The Extended Non-Homothetic CES Preference

Author

Listed:
  • Junmin Liao

    (Wuhan University)

  • Xian Sun

    (Wuhan University)

  • Wei Wang

    (University of International Business and Economics)

Abstract

The standard non-homothetic CES preference imposes parametric constraints on the relationship between price and income elasticities. This paper shows these parametric constraints are empirically implausible for certain sectors. We addresses this issue by introducing an extended parametric restriction that removes these constraints. We fully characterize the extended non-homothetic CES preference and show that it retains all the desirable properties of the standard non-homothetic CES preference. Importantly, the extended non-homothetic CES preference is not restricted for conducting empirical and quantitative exercises in macro-development models. It thus offers a flexible workhorse model for macro development and related fields. (Copyright: Elsevier)

Suggested Citation

  • Junmin Liao & Xian Sun & Wei Wang, 2025. "The Extended Non-Homothetic CES Preference," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 58, October.
    • Handle: RePEc:red:issued:23-241
    DOI: 10.1016/j.red.2025.101304
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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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