Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey

43 Pages Posted: 17 Aug 2010 Last revised: 10 Aug 2022

See all articles by Orazio Attanasio

Orazio Attanasio

Dept of Economics Yale University; Institute for Fiscal Studies (IFS); University College London - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Guglielmo Weber

University of Padua - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for Fiscal Studies (IFS)

Date Written: July 1994

Abstract

In this paper we show that some of the predictions of models of consumer intertemporal optimization are not inconsistent with the patterns of non-durable expenditure observed in US household-level data. Our results and our approach are new in several respects. First, we use the only US micro data set which has direct and complete information on household consumption. The microeconomic data sets used in most of the consumption literature so far contained either very limited information on consumption (like the PSID) or none at all, in which case consumption had to be obtained indirectly from income and changes in assets. Second, we propose a flexible and novel specification of preferences which is easily estimable and allows a general treatment jof multiple commodities. We show that aggregation over commodities can be important, both theoretically and in practice. Third, we present empirical results that show that it is possible to find a reasonably simple specification of preferences, which controls for the effects of changes in demographics and labor supply behavior over the life cycle and which is not rejected by the available data. On our preferred specification, we obtain sharp estimates of key behavioral parameters (including the elasticity of intertemporal substitution) and no rejections of theoretical restrictions. Our results contrast sharply with most of the previous evidence, which has typically been interpreted as rejection of the theory. We show that previous rejections can be explained by the simplifying assumptions made to derive empirically tractable equations. We also show that results obtained using food consumption or aggregate data can be extremely misleading.

Suggested Citation

Attanasio, Orazio and Weber, Guglielmo, Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey (July 1994). NBER Working Paper No. w4795, Available at SSRN: https://ssrn.com/abstract=1660281

Orazio Attanasio (Contact Author)

Dept of Economics Yale University ( email )

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Institute for Fiscal Studies (IFS)

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University College London - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Guglielmo Weber

University of Padua - Department of Economics ( email )

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+39 049 827 4221 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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