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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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  • pakos, michal

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32453.

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Date of creation: 01 Jul 2011
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Publication status: Published in Journal of Business and Economic Statistics 3.29(2011): pp. 439-454
Handle: RePEc:pra:mprapa:32453

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Keywords: consumption; durable goods; nonhomotheticity; elasticity of substitution; asset pricing;

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Cited by:
  1. Pakos, Michal, 2013. "Long-Run Risk and Hidden Growth Persistence," MPRA Paper 47217, University Library of Munich, Germany.
  2. repec:van:wpaper:vuecon-sub-13-00002 is not listed on IDEAS
  3. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2013. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," CERGE-EI Working Papers wp494, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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