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Nobel Prize winner: Deaton (Almost ideal demand system (aids): Deaton…
Nobel Prize winner: Deaton
Angus Deaton (1945- present)
Professor Princeton University
Works: An Almost Ideal Demand System (AER, 1980)
Studied at University of Cambridge
Nobel Prize in 2015:
"for his analysis of consumption, poverty, and welfare”
Main contributions
Almost Ideal Demand System (AIDS)
Policy in development countries
Consumption demand
Consumption demand
Patterns in consumption
Choice for spending vs. saving
Time varying patterns
Deaton empirically tested Friedman’s permanent income hypothesis (PIH)
--> PIH predicts that consumption is determined by permanent income
Deaton parado
x: data show excess smoothness of
consumption in the face of unanticipated permanent
income shocks
--> Aggregate vs individual/household level data -> aggregation issues
--> Focus on total level of consumption
Almost ideal demand system (aids): Deaton
Previous systems did not fit
--> empirical patterns
--> predictions of rational consumers
Deaton & Muellbauer:
Almost Ideal Demand System (AIDS)
Aggregation over consumers under weaker assumptions
Representative consumer
Demand system: price * quantities for various commodities
IDS is standard tool for economic policy:
--> Price indexes
--> Comparing living standards
--> Focus on consumption choices across various commodities