Do Demographics Prevent Consumer Aggregates from Reflecting Micro-Level Preferences?
CFS Working Paper No. 484
94 Pages Posted: 1 Nov 2014
Date Written: September 17, 2014
Most simulated micro-founded macro models use solely consumer-demand aggregates in order to estimate deep economy-wide preference parameters, which are useful for policy evaluation. The underlying demand-aggregation properties that this approach requires, should be easy to empirically disprove: since household-consumption choices differ for households with more members, aggregation can be rejected if appropriate data violate an affine equation regarding how much individuals benefit from within-household sharing of goods. We develop a survey method that tests the validity of this equation, without utility-estimation restrictions via models. Surprisingly, in six countries, this equation is not rejected, lending support to using consumer-demand aggregates.
Keywords: Linear Aggregation, Dynamic Representative Consumer, Household-Size Economies, Equivalent Incomes, Survey Method
JEL Classification: C42, E21, D12, E01, D11, D91, D31, I32
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