Browning, M., and M. D. Collado
Journal of Applied Econometrics – 22 (2007): 625-640.
Keywords: Habits, Consumption, Panel data
Abstract: We examine demand behaviour for intertemporal dependencies, using Spanish panel data.We present evidence
that there is both state dependence and correlated heterogeneity in demand behaviour. Our specific findings
are that food outside the home, alcohol and tobacco are habit forming, whereas clothing and small durables
exhibit durability. We conclude that demand analyses using cross-section data that ignore these effects may
be seriously biased. On the other hand, the degree of intertemporal dependence is not sufficiently strong to
make composite ‘consumption’ significantly habit forming, as has been suggested in some recent analyses.