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Habits And Heterogeneity In Demands: A Panel Data Analysis

  • M. Dolores Collado

    ()

    (Universidad de Alicante)

  • Martín Browning

    (University of Copenhagen)

We examine demand behaviour for intertemporal dependencies, using Spanishpanel data. We present evidence that there is both state dependence and correlatedheterogeneity in demand behaviour. Our specific findings are that food outside thehome, alcohol and tobacco are habit forming whereas clothing and small durablesexhibit durability. We conclude that demand analyses using cross-section data thatignore these effects may be seriously biased. On the other hand, the degree ofintertemporal dependence is not sufficiently strong to make composite `consumption'significantly habit forming, as has been suggested in some recent analyses.

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File Function: Fisrt version / Primera version, 2006
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-25.

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Length: 36 pages
Date of creation: Nov 2006
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-25
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  1. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  2. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification?," Working Papers wp2009_0905, CEMFI.
  3. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
  4. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  5. Fumio Hayashi, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1083-1113.
  6. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  7. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
  8. M. Dolores Collado & Martín Browning, 1999. "-The Response Of Expenditures To Anticipated Income Changes: Panel Data Estimates," Working Papers. Serie AD 1999-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Spinnewyn, Frans, 1981. "Rational habit formation," European Economic Review, Elsevier, vol. 15(1), pages 91-109.
  10. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  12. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
  13. Carrasco, Raquel & Labeaga Azcona, J Maria & López-Salido, J David, 2002. "Consumption and Habits: Evidence from Panel Data," CEPR Discussion Papers 3520, C.E.P.R. Discussion Papers.
  14. Sergi Jiménez-Martín & José M. Labeaga & Angel López, 1998. "Participation, heterogeneity and dynamics in tobacco consumption: evidence from cohort data," Health Economics, John Wiley & Sons, Ltd., vol. 7(5), pages 401-414.
  15. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  16. Browning, Martin, 1991. "A Simple Nonadditive Preference Structure for Models of Household Behavior over Time," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 607-37, June.
  17. Martin Browning & Jesus Carro, 2006. "Heterogeneity and Microeconometrics Modelling," CAM Working Papers 2006-03, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  18. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
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