Effects of Price Shocks on Consumer Demand: Estimating the QUAIDS Demand System on Czech Household Budget Survey Data

The purpose of this paper is to provide estimates of price and income elasticities of Czech consumer demand, which can be used when analyzing the impact of exogenous price changes on consumer behavior. We estimate a demand system in which demand depends on income, prices and other socio-economic household characteristics. We combine the Household Budget Survey data with information on prices from alternative sources between 2000 and 2008. Based on our estimates, the commodity bundles of food, energy, and health and body care are necessary goods, as their budget elasticity is positive and below one. Clothing, transportation, education and leisure are luxury goods, with income elasticity above one. We found expenditure on energy and transportation and communication to be the most elastic in their own prices. We use our estimates to analyze the impact of regulated price changes on consumer demand and discuss the further potential use of our results.