An Almost Ideal Demand System Incorporating Habits: An Analysis of Expenditures on Food and Aggregate Commodity Groups

The Almost Ideal Demand System (AIDS) developed by Deaton and Muellbauer (1980) is extended by explicitly including habit effects. The stochastic specifications and the estimation procedures are discussed. The static and dynamic models are estimated for 11 aggregate commodity and 4 food commodity classifications using annual US data for the years 1948-1978. The results are compared with those obtained by other researchers for similar commodity classifications. The empirical results indicate the presence of habits or persistencies in consumption behavior patterns of consumers when the AIDS is used as the maintained hypothesis.