Intertemporal Consumption With Directly Measured Welfare Functions and Subjective Expectations
RAND Corporation; Institute for the Study of Labor (IZA)
Kristin J. Kleinjans
California State University, Fullerton - Department of Economics; RAND Corporation
Arthur Van Soest
RAND Corporation; Netspar; Tilburg University; Institute for the Study of Labor (IZA)
RAND Working Paper Series No. WR-535
Euler equation estimation of intertemporal consumption models imposes heavy demands on data and identifiability conditions. For example, one typically needs panel data on consumption, assumptions on expectations, and a parameterization of preferences. The authors aim at reducing some of these requirements, by using additional information on respondents' preferences and expectations. The results suggest that individually measured welfare functions and expectations have predictive power for the variation in consumption across households. Furthermore, estimates of the intertemporal elasticity of substitution based on the estimated welfare functions are plausible and of a similar order of magnitude as other estimates found in the literature.
Number of Pages in PDF File: 29
Keywords: expectations, consumption, Euler equations
JEL Classification: D91, D84, D12working papers series
Date posted: November 9, 2007
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