Are Predicted Lifetime Consumption Profiles Robust with respect to Model Specifications?
AbstractStructural models of lifetime labour supply and consumption require functional specifications of preferences as well as other assumptions that can be difficult to assess a priori. Misspecifications of the model might lead to biases in the estimates of preferences, that may influence the simulation results obtained from the model. In this paper we study to what extent predicted distributions of lifetime consumption are robust with respect to the specification of preferences. The simulation results show that simulated distributions of lifetime consumption strongly depend on the estimate of the intertemporal substitution rate as well as on the estimate of the time preference rate relative to the marginal interest rate net of taxes.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 308.
Date of creation: Aug 2001
Date of revision:
Lifetime preferences; life cycle consumption; testing modelspesifications; empirical models.;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
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