U.S. DEMAND FOR EDIBLE FATS AND OILS: A DYNAMIC SYSTEM WITH ARMA ERRORS

This study investigates the effects of prices and total expenditure on U.S. household consumption of edible fats and oils that are strictly used for salad and cooking. A flexible dynamic demand system which nests the Translog and Almost Ideal Demand Systems is estimated using annual time-series data in the U.S. Results suggest that correction for serial correlation is important. With dynamic specification and correction for serial correlation. the generalized model outperforms the two restrictive specifications in terms of simple model adequacy but generates similar demand elasticities. Demands for fats and oils are found to be price inelastic. We also find a mix of gross substitutes and complements among the products considered. Findings on the effects of prices are useful for private edible oil companies in formulating their pricing strategies and for policy makers in designing effective domestic and trade policies.