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Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility

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Author Info
Orazio P. Attanasio
Tullio Jappelli

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Abstract

The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6560.

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Date of creation: May 1998
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Handle: RePEc:nbr:nberwo:6560

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E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
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  2. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  3. Orazio P. Attanasio, 1993. "A Cohort Analysis of Saving Behavior by U.S. Households," NBER Working Papers 4454, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 631-49, July. [Downloadable!] (restricted)
  5. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June. [Downloadable!] (restricted)
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  6. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December. [Downloadable!] (restricted)
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  7. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Orazio Attanasio & Nicola Pavoni, 2007. "Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption," NBER Working Papers 12994, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Tullio Jappelli & Luigi Pistaferri, 2005. "Intertemporal Choice and Consumption Mobility," CFS Working Paper Series 2005/28, Center for Financial Studies. [Downloadable!]
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  3. Miguel Székely & Orazio P. Attanasio, 2001. "Sacudidas salariales y variabilidad del consumo en México durante los años 90," RES Working Papers 4266, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Miguel Székely & Orazio P. Attanasio, 2001. "Wage Shocks and Consumption Variability in Mexico during the 1990s," RES Working Papers 4265, Inter-American Development Bank, Research Department. [Downloadable!]
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