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Estimating Intertemporal and Intratemporal Substitutions When Both Income and Substitution Effects Are Present: The Role of Durable Goods

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  • Michal Pakoš

Abstract

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.

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Article provided by Taylor & Francis Journals in its journal Journal of Business & Economic Statistics.

Volume (Year): 29 (2011)
Issue (Month): 3 (July)
Pages: 439-454

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Handle: RePEc:taf:jnlbes:v:29:y:2011:i:3:p:439-454

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Cited by:
  1. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
  2. repec:van:wpaper:vuecon-sub-13-00002 is not listed on IDEAS
  3. Pakoš, Michal, 2013. "Long-run risk and hidden growth persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 37(9), pages 1911-1928.

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