The Consumer Consumption Conundrum: An Explanation
JOURNAL OF MONEY, CREDIT, AND BANKING, Vol 29 No 2, May 1997
Posted: 18 Feb 1997
This paper uses the Fourier flexible form to jointly approximate utility and service flows from durable and nondurable goods. In contrast, parametric functions are usually not flexible enough to accurately approximate nonseparability and often give inconsistent results. This paper calls these inconsistent results the consumer consumption conundrum. I calculate Morishima elasticities of substitution because Blackorby and Russell (1989) show that the Allen-Uzawa measure of substitution is incorrect. Results show that substitution into commodities are variable over time. Therefore, policy intended to affect consumption should take the variability of substitution into account because constant elasticity of substitution functions may give misleading conclusions.
JEL Classification: C14, C30, E21
Suggested Citation: Suggested Citation