On the Aggregation of Euler Equations for Consumption in Simple Overlapping-Generations Models
AbstractIf consumers have finite lives, the aggregate consumption growth equation is affected by entries and exits (births and deaths). The authors use two- and three-period overlapping-generations models to show that entries and exits produce a relationship between aggregate consumption growth and the interest rate that is fundamentally different from the individual Euler equation for consumption. If aggregate data are used to estimate an 'aggregate' Euler equation, under plausible assumptions they show that the estimate of the elasticity of intertemporal substitution is downward biased and that consumption growth exhibits excess sensitivity to labor income. Copyright 1995 by The London School of Economics and Political Science.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 62 (1995)
Issue (Month): 248 (November)
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- Benjamin Carton, 2012. "Monetary-Policy Tradeoff in Overlapping Generations DSGE Models," DEM Working Papers Series 028, University of Pavia, Department of Economics and Management.
- Marco Angrisani & Michael D. Hurd & Erik Meijer, 2012. "Investment Decisions in Retirement: The Role of Subjective Expectations," Working Papers wp274, University of Michigan, Michigan Retirement Research Center.
- Karl-Heinz Todter & Gerhard Ziebarth, 1997. "Price Stability vs. Low Inflation in Germany: An Analysis of Costs and Benefits," NBER Working Papers 6170, National Bureau of Economic Research, Inc.
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