System-Wide Analysis of International Consumption Patterns

The modern system-wide approach to applied demand analysis emphasizes a unity between theory and applications. Its firm foundations in economic theory make it one of the most successful areas of applied econometrics. "A System-Wide Analysis of International Consumption Patterns" presents a large number of applications of recent innovations in the area and uses consumption data for 18 OECD countries to provide convincing evidence, one way or the other, about the validity of consumption theory. The empirical results presented in the book have a number of uses. Reliable estimates of income and price elasticities of demand are provided for 10 commodity groups in 18 countries. A feature of these results is that a number of major empirical regularities are identified that seem to hold across different periods and different countries. The text also presents an extensive application of recently developed Monte Carlo testing procedures to test demand theory and the structure of preferences. The results so obtained are in stark contrast to most previous findings based on the conventional asymptotic tests.Other results presented in the book include: (1) differences in economic variables (prices and incomes in particular) account for observed differences in consumption patterns internationally, while differences in tastes seem to play a much smaller role. (2) Own-price elasticities are approximately proportional to the corresponding income elasticities, a result coinciding with Pigou's law. (3) The income elasticity of the marginal utility of income does not seem to depend on income, which contradicts the famous Frisch's conjecture.