Complete Markets in Italy: An Analysis on Micro Data
AbstractThis 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.
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Bibliographic InfoArticle provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.
Volume (Year): 58 (1999)
Issue (Month): 1 (April)
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Web page: http://www.gde.unibocconi.it/
Find related papers by 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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- 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.
- 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.
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