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Permanent income, import prices, and the demand for imported consumer durables: a structural econometric investigation

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  • Richard H. Clarida

Abstract

This paper derives a rational expectations, permanent income model of the demand for imported consumer durable goods. Assuming that the preferences of the representative household are addilog, our model implies that the log of the exact but unobservable utility index of permanent income must in equilibrium be cointegrated with log consumption of nondurables. Using nondurables consumption as our noisy proxy for permanent income, we estimate that log nondurables consumption, the log relative price of durables imports, and log spending on durables imports are cointegrated, and that this cointegrating vector exactly identifies the model's structural parameters. We are unable to reject the essential empirical implications of the model, and obtain sensible estimates of the price and income elasticities of the demand for imported consumer durables. In particular, we find that consumer durables imports are quite price elastic in the long run, and that the permanent income elasticity of imported durable goods demand averages 2.3.
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Suggested Citation

  • Richard H. Clarida, 1993. "Permanent income, import prices, and the demand for imported consumer durables: a structural econometric investigation," Research Paper 9304, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9304
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    1. Peter C. B. Phillips & Mico Loretan, 1991. "Estimating Long-run Economic Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(3), pages 407-436.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Ceglowski, Janet, 1991. "Intertemporal substitution in import demand," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 118-130, March.
    4. Deaton, Angus S, 1974. "The Analysis of Consumer Demand in the United Kingdom, 1900-1970," Econometrica, Econometric Society, vol. 42(2), pages 341-367, March.
    5. William L. Branson, 1972. "The Trade Effects of the 1971 Currency Realignments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(1), pages 15-70.
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    Cited by:

    1. Hugo Oliveros & Luisa Fernanda Silva, 2001. "La Demanda por Importaciones en Colombia," Borradores de Economia 187, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Econometric models; Income; Imports; Consumption (Economics); Prices;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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