Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility

39 Pages Posted: 16 Sep 2000 Last revised: 5 Dec 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)

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance - CSEF; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Date Written: May 1998

Abstract

The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.

Suggested Citation

Attanasio, Orazio and Jappelli, Tullio, Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility (May 1998). NBER Working Paper No. w6560, Available at SSRN: https://ssrn.com/abstract=226293

Orazio Attanasio (Contact Author)

Dept of Economics Yale University ( 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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Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Center for Studies in Economics and Finance - CSEF ( email )

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Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

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HOME PAGE: http://www.csef.it/people/jappelli.htm