Analysis of u.s. household final consumption expenditure using la/aids approach

The main objective of this article is to analyze the US household final consumption expenditure using a Linear Approximate Almost Ideal Demand System (LA/AIDS) model for the period of 1989 through 2015. The six major groups of goods and services are (1) food and alcoholic beverage, (2) housing, (3) apparel and service, (4) transportation, (5) health care, (6) and other goods and services. The LA/AIDS model has been used through homogeneity and symmetry restrictions by using the seemingly unrelated regressions (SUR) method. The results show that price parameters are homogeneous of degree zero, and confirm the symmetry hypothesis for the nominal price parameters of goods and services with exception of the cross-price parameters between food and beverage expenditure and health care expenditure. The uncompensated own-price elasticities with negative signs in all groups are statistical significant with exception of uncompensated own-price elasticity demand for apparel and service. The estimated expenditure elasticities showed that medical care (not significant) and food and beverages can be considered as necessary goods whilst apparel and services, transportation, and other goods and services are close to being considered as luxury goods and services. Of the major six groups covered in this study, housing has a unit expenditure elasticity. Furthermore, the compensated own-price elasticities of all groups are relatively inelastic, and statistically significant with exception of compensated own-price elasticities for food and beverages and apparel and services.