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Revisiting habits and heterogeneity in demands

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  • Fritsch, Markus
  • Pua, Andrew Adrian Yu
  • Schnurbus, Joachim

Abstract

We conduct a narrow replication of Browning and Collado (Journal of Applied Econometrics 2007; 22(3): 625-640). They estimate a linear panel AR(1) version of an Engel curve for six consumption composites using iterated GMM. We find that the coefficient estimates and standard errors differ from the reported results when we use their instrument set; in particular, we find habit formation in non-durable services and no state dependence in small durables. Despite finding evidence for weak instruments, our results support most of the claims made in the original paper and are also unable to detect intertemporal dependence strong enough to resolve existing macro puzzles.

Suggested Citation

  • Fritsch, Markus & Pua, Andrew Adrian Yu & Schnurbus, Joachim, 2019. "Revisiting habits and heterogeneity in demands," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-78-19, University of Passau, Faculty of Business and Economics.
    • Handle: RePEc:zbw:upadvr:v7819
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    habit formation; linear dynamic panel data methods; weak instruments;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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