Demand for Nondurable Goods: a Shortcut to Estimating Long-Run Price Elasticities

Authors: Helena Perrone

RAND Journal of Economics, Vol. 48, No 3, 856-873, August, 2017

When consumers stockpile, static demand models overestimate long-term price responses. This article presents a dynamic model of demand with consumer inventories and proposes a shortcut to estimate the long-run price elasticities without having to solve the dynamic program. Using French data on food purchases, I find elasticities consistent with those that result from the full-blown estimations found in the literature.