Stochastic Components of Individual Consumption: A Time Series Analysis of Grouped Data

48 Pages Posted: 21 Aug 2006 Last revised: 16 Jul 2010

See all articles by Orazio Attanasio

Orazio Attanasio

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

Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche; CeRP - Collegio Carlo Alberto

Date Written: August 2006

Abstract

In this paper we propose a method to characterize the time series properties of individual consumption, income and interest rates using micro data, as studies in labour economics have characterized the time series properties of hours and earnings. Our approach, however, does not remove aggregate shocks. Having estimated the parameters of a flexible multivariate MA representation we relate the coefficients of our statistical model to structural parameters of theoretical models of consumption behaviour. Our approach offers a unifying framework that encompasses the Euler equation approach to the study of consumption and the studies that relate innovations to income to innovations to consumption, such as those that have found the so-called excess smoothness of consumption. Using a long time series of cross sections to construct synthetic panel data for the UK, we estimate our model and find that the restriction of Euler equations are typically not rejected, while the data show 'excess smoothness'.

Suggested Citation

Attanasio, Orazio and Borella, Margherita, Stochastic Components of Individual Consumption: A Time Series Analysis of Grouped Data (August 2006). NBER Working Paper No. w12456. Available at SSRN: https://ssrn.com/abstract=924742

Orazio Attanasio (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5880 (Phone)
+44 20 7916 2775 (Fax)

Institute for Fiscal Studies (IFS)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy

HOME PAGE: http://https://sites.google.com/site/margheritaborella/

CeRP - Collegio Carlo Alberto

Via Real Collegio, 30
Moncalieri, Turin
Italy
+39 011 647 6525 (Phone)
+39 011 640 3680 (Fax)

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