Measurement Error in Imputed Consumption

Posted: 24 May 2018

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Lorenz Kueng

University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management

Michaela Pagel

Columbia University - Columbia Business School

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2018

Abstract

Because of limitations in survey-based measures of household consumption, a growing literature uses an alternative measure of consumption commonly referred to as `imputed consumption'. This approach utilizes annual snapshots of household income and wealth from administrative tax registries to calculate household consumption as the residual of the household budget constraint. In this paper we use transaction-level retail investment data to assess the measurement error that can result in imputed consumption due to intra-year changes in asset values and composition. We show that substantial discrepancies between imputed and actual spending can arise due to trading costs, asset distributions, variable trade timing, and volatile asset prices between two annual snapshots. While these errors tend to be quantitatively small and centered around zero on average, we demonstrate that they vary across individuals of different types and income levels and are highly correlated with the business cycle.

Keywords: Registry Data, Measurement Error, Retail Investors, Household Portfolios

JEL Classification: D12, D14, G11, H31

Suggested Citation

Baker, Scott R. and Kueng, Lorenz and Pagel, Michaela and Meyer, Steffen, Measurement Error in Imputed Consumption (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3179117

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

Lorenz Kueng (Contact Author)

University of Lugano - Faculty of Economics

Via Giuseppe Buffi 13
Lugano, TI 6904
Switzerland

HOME PAGE: http://www.usi.ch/en

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://www.sfi.ch/en/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org/

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
+1 (847) 491-7843 (Phone)
+1 (847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/

Michaela Pagel

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Steffen Meyer

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

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