NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Permanent Income, Import Prices, and the Demand for Imported Consumer Durbales: A Structural Econometric Investigation

Richard H. Clarida

NBER Working Paper No. 4437
Issued in August 1993
NBER Program(s):   ITI

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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Document Object Identifier (DOI): 10.3386/w4437

Published: (Published as "Consumption, Import Prices, and the Demand for Imported Consumer Durables: A Structural Economic Investigation") Review of Economics and Statistics, LXVIII (August 1996).

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