Unexploited Connections Between Intra- and Inter-temporal Allocation

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Unexploited Connections Between Intra- and Inter-temporal Allocation

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Crossley, T.F.
Low, H.W.

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Abstract

This paper shows that a power utility specification of preferences over total expenditure (ie. CRRA preferences) implies that intratemporal demands are in the PIGL/PIGLOG class. This class generates (at most) rank two demand systems and we can test the validity of power utility on cross-section data. Further, if we maintain the assumption of power utility, and within period preferences are not homothetic, then the intertemporal preference parameter is identified by the curvature of Engel curves. Under the power utility assumption, neither Euler equation estimation nor structural consumption function estimation is necessary to identify the power parameter. In our empirical work, we use demand data to estimate the power utility parameter and to test the assumption of the power utility representation. We .nd estimates of the power parameter larger than obtained from Euler equation estimation, but we reject the power specification of within period utility.

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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0537.

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Length: 22
Date of creation: Aug 2005
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Handle: RePEc:cam:camdae:0537

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Paper
- Thomas Crossley & Hamish Low, 2005. "Unexploited connections between intra- and inter-temporal allocation," IFS Working Papers W05/25, Institute for Fiscal Studies. [Downloadable!]
- Thomas F. Crossley & Hamish W. Low, 2005. "Unexploited Connections Between Intra- and Inter-temporal Allocation," Quantitative Studies in Economics and Population Research Reports 395, McMaster University. [Downloadable!]
- Thomas F. Crossley & Hamish W. Low, 2005. "Unexploited Connections Between Intra- and Inter-temporal Allocation," Social and Economic Dimensions of an Aging Population Research Papers 131, McMaster University. [Downloadable!]

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-09-11 (All new papers)
NEP-ALL-2005-09-02 (All new papers)
NEP-DGE-2005-09-02 (Dynamic General Equilibrium)
NEP-MAC-2005-09-02 (Macroeconomics)
NEP-MIC-2005-09-02 (Microeconomics)

References listed on IDEAS
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Other versions:
- Orazio Attanasio & Hamish Low, 2002. "Estimating Euler equations," IFS Working Papers W02/06, Institute for Fiscal Studies. [Downloadable!]
- Orazio P. Attanasio & Hamish Low, 2000. "Estimating Euler Equations," NBER Technical Working Papers 0253, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- Sydney Ludvigson & Christina H. Paxson, 1997. "Approximation bias in linearized Euler equations," Research Paper 9712, Federal Reserve Bank of New York. [Downloadable!]
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