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Complete Markets in Italy: An Analysis on Micro Data

Author

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  • Tomaso Duso

    (Wissenschaftszentrum Berlin fur Sozialforschung)

Abstract

This paper tests the hypothesis of complete markets in a panel of Italian households drawn from the Bank of Italy’s Survey of Household Income and Wealth (SHIW). Under the hypothesis that markets are complete and preferences are of the CRRA type, consumption growth is equated across households, and thus it is independent of idiosyncratic variables. I use the difference between realized income and its subjective expectation as the household’s idiosyncratic shock, allowing for non-separability between consumption and leisure. Other possible measures for the personal shock are proposed in order to obtain more robust results. For all the proposed specifications the test strongly rejects the null hypothesis of complete markets.

Suggested Citation

  • Tomaso Duso, 1999. "Complete Markets in Italy: An Analysis on Micro Data," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(1), pages 1-25, April.
    • Handle: RePEc:gde:journl:gde_v58_n1_p1-25
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    Citations

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    Cited by:

    1. Mario Padula, 2000. "Excess Smoothness and Durable Goods: Evidence from Subjective Expectations Data," CSEF Working Papers 38, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Christian Stoltenberg & Arne Uhlendorf, 2022. "Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation," Working Papers 2022-15, Center for Research in Economics and Statistics.
    3. Padula, Mario, 2004. "Consumer durables and the marginal propensity to consume out of permanent income shocks," Research in Economics, Elsevier, vol. 58(4), pages 319-341, December.

    More about this item

    Keywords

    complete markets; full insurance; subjective expectations; Italy; consumption;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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