pakos, michal (2011): Estimating intertemporal and intratemporal substitutions when both income and substitution effects are present: the role of durable goods. Published in: Journal of Business and Economic Statistics , Vol. 29, No. 3 (July 2011): pp. 439-454.
Download (353kB) | Preview
Homotheticity induces a dramatic statistical bias in the estimates of the intratemporal and intertemporal substitutions. I find potent support in favor of nonhomotheticity in aggregate consumption data, with nondurable goods being necessities and durable goods luxuries. I obtain the intertemporal substitutability negligible (0.04), a magnitude close to Hall’s (1988) original estimate, and the intratemporal substitutability between nondurable goods and service flow from the stock of durable goods small as well (0.18). Despite that, due to the secular decline of the rental cost, the budget share of durable goods appears trendless.
|Item Type:||MPRA Paper|
|Original Title:||Estimating intertemporal and intratemporal substitutions when both income and substitution effects are present: the role of durable goods|
|English Title:||Estimating Intertemporal and Intratemporal Substitutions When Both Income and Substitution Effects Are Present: The Role of Durable Goods|
|Keywords:||consumption, durable goods, nonhomotheticity, elasticity of substitution, asset pricing|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth
D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies
D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles
|Depositing User:||Michal Pakos|
|Date Deposited:||27. Jul 2011 17:51|
|Last Modified:||01. Jan 2016 10:34|
Andrews,W. K. D. (1991), “Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation,” Econometrica, 59 (3), 817–858.
Andrews, W. K. D., and Monahan, C. J. (1992), “An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator,” Econometrica, 60 (4), 953–966.
Atkeson, A., and Ogaki, M. (1996), “Wealth Varying Intertemporal Elasticities of Substitution: Evidence From Panel and Aggregate Data,” Journal of Monetary Economics, 38, 507–534.
Bernanke, S. B. (1984), “Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence From Panel Data,” Quarterly Journal of Economics, 99, 587–614.
Brockwell, P. J., and Davis, R. A. (1991), Time Series: Theory and Methods. Springer Series in Statistics, New York: Springer-Verlag.
Caballero, J. R. (1993), “Durable Goods: An Explanation for Their Slow Adjustment,” Journal of Political Economy, 101, 351–384.
Campbell, J. Y. (1999), “Asset Prices, Consumption and the Business Cycle,” in Handbook of Macroeconomics, Vol. 1, eds. J. B. Taylor and M. Woodford, Amsterdam: North-Holland, pp. 1231–1303, Chap. 19.
Campbell, J. Y., and Shiller, R. J. (1988), “Stock Prices, Earnings, and Expected Dividends,” Journal of Finance, 43 (3), 661–676.
Cooley, F. T., and Ogaki, M. (1996), “A Time Series Analysis of Real Wages, Consumption, and Asset Returns,” Journal of Applied Econometrics, 11, 119–134.
Costa, L. D. (2001), “Estimating Real Income in the United States From 1988 to 1994: Correcting CPI Bias Using Engel Curves,” Journal of Political Economy, 109, 1288–1310.
Deaton, A., and Muellbauer, J. (1980), Economics and Consumer Behavior, Cambridge, U.K.: Cambridge University Press.
Dunn, K. B., and Singleton, K. J. (1986), “Modelling the Term Structure of Interest Rates Under Nonseparable Utility and Durability of Goods,” Journal of Financial Economics, 17, 27–55.
Eberly, C. J. (1994), “Adjustment of Consumers’ Durables Stocks: Evidence From Automobile Purchases,” Journal of Political Economy, 102, 403–436.
Eichenbaum, M., and Hansen, P. L. (1990), “Estimating ModelsWith Intertemporal Substitution Using Aggregate Time Series Data,” Journal of Business & Economic Statistics, 8, 53–69.
Elliott, G., Rothenberg, T. J., and Stock, J. H. (1996), “Efficient Tests for an Autoregressive Unit Root,” Econometrica, 64 (4), 813–836.
Fleissig, R. A., Gallant, R. A., and Seater, J. J. (2000), “Separability, Aggregation, and Euler Equation Estimation,” Macroeconomic Dynamics, 4, 547–572.
Grossman, J. S., and Laroque, G. (1990), “Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods,” Econometrica, 58 (1), 25–51.
Hall, E. R. (1988), “Intertemporal Substitution in Consumption,” Journal of Political Economy, 96, 339–357.
Hall, P., and Horowitz, J. L. (1996), “Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators,” Econometrica, 64 (4), 891–916.
Hanoch, G. (1977), “Risk Aversion and Consumer Preferences,” Econometrica, 45 (2), 413–426.
Hansen, L. P. (1982), “Large Sample Properties of Generalized Method of Moments Estimators,” Econometrica, 50 (4), 1029–1054.
Hansen, L. P., and Singleton, K. (1982), “Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models,” Econometrica, 50, 1269–1286.
Hansen, L.P. and Singleton, K., (1983), “Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns,” Journal of Political Economy, 91 (2), 249–265.
Hansen, P. L., Heaton, J., and Yaron, A. (1996), “Finites Sample Properties of Some Alternative GMM Estimators,” Journal of Business & Economic Statistics, 14, 262–280.
Johansen, S. (1991), “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models,” Econometrica, 59, 1551–1580.
Kocherlakota, N. (1990), “On Tests of Representative Consumer Asset Pricing Models,” Journal of Monetary Economics, 26, 285–304.
Lam, P. S. (1989), “Irreversibility and Consumer Durables Expenditures,” Journal of Monetary Economics, 23, 135–150.
Lewbel, A. (1987), “Bliss Levels That Aren’t,” Journal of Political Economy, 95, 211–215.
Mankiw, N. G. (1982), “Hall’s Consumption Hypothesis and Durable Goods,” Journal of Monetary Economics, 10, 417–425.
Mankiw, N.G.(1985), “Consumer Durables and the Real Interest Rate,” Review of Economics and Statistics, 67, 353–362.
Ng, S., and Perron, P. (2001), “Lag Selection and the Construction of Unit Root Tests With Good Size and Power,” Econometrica, 69 (6), 1519–1554.
Ogaki, M. (1992), “Engel’s Law and Cointegration,” Journal of Political Economy, 100, 1027–1046.
Ogaki, M., and Reinhart, C. M. (1998), “Measuring Intertemporal Substitution: The Role of Durable Goods,” Journal of Political Economy, 106 (5), 1078–1098.
Stigler, G., and Becker, G. (1977), “De Gustibus Non Est Disputandum,” American Economic Review, 67, 76–90.
Swensen, R. A. (2006), “Bootstrap Algorithms for Testing and Determining the Cointegration Rank in VAR Models,” Econometrica, 74 (6), 1699–1714.
Tauchen, G. (1986), “Statistical Properties of Generalized Method of Moments Estimators of Structural Parameters Obtained From Financial Market Data,” Journal of Business & Economic Statistics, 4, 397–425.
West, K. D., and Wilcox, D. W. (1994), “Some Evidence on Finite Sample Distributions of an Instrumental Variables Estimator of the Linear Quadratic Inventory Model,” in Inventory Cycles and Monetary Policy, ed. R. Fiorito, Berlin: Springer-Verlag, pp. 253–282.
Yogo, M. (2006), “A Consumption-Based Explanation of Expected Stock Returns,” Journal of Finance, 61 (2), 539–580.