A time-series counterpart of Engel's law is that the expenditure share on food declines as the economy grows. The main purpose of this paper is to test whether Houthakker's addilog utility function can simultaneously explain this time-series observation and cross-sectional observations concerning Engel's law. Ogaki and Park's cointegration approach is used to estimate parameters of the utility function from time-series data. Total expenditure elasticities implied by the estimated addilog utility function are compared with estimates of the elasticities from cross-sectional data.

The rate of time preference (RTP) and the intertemporal elasticity of substitution (IES) are two important factors shaping intertemporal consumption decisions. Models in which the RTP and/or the IES differ systematically between rich and poor households have different empirical and policy implications for economic development, growth, and the distribution of income and consumption from those of standard models in which these parameters are constant across households. In this paper, we estimate a model in which both RTP and IES are allowed to differ across rich and poor households using household-level panel data from India. Our empirical results are consistent with the view that the RTP is constant across poor and rich households, but the IES is larger for the rich than it is for the poor.

We propose the parametric Dynamic Seemingly Unrelated Regression (DSUR) estimator for simultaneous estimation of multiple cointegrating regressions. DSUR is efficient when the equilibrium errors are correlated across equations and is applicable for panel cointegration estimation in environments where the cross section is small relative to the available time series. We study the asymptotic and small sample properties of the DSUR estimator for both heterogeneous and homogeneous cointegrating vectors. We then apply the method to analyse two long-standing problems in international economics. Our first application revisits the estimation of long-run correlations between national investment and national saving. Our second application revisits the question of whether the forward exchange rate is an unbiased predictor of the future spot rate.