Government Expenditures and the Permanent-Income Model
AbstractThere is substantial empirical literature which examines the relationship between private and public consumption. The conclusions from this literature, however, are generally mixed. In this paper, we attempt to provide some additional evidence on this relationship. We consider a two-good permanent-income model which allows us to estimate both the intraperiod and intertemporal elasticities of substitution. The estimation strategy proceeds in two steps. In the first step, we use cointegration methods to estimate the intraperiod preference parameter while in the second step, we estimate the intertemporal parameter via generalized method of moments. A useful implication of this approach is that it allows us to use the estimated preference parameters to shed some light on whether private and public consumption are best described as complements, substitutes or unrelated (in an Edgeworth-Pareto sense).
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Bibliographic InfoPaper provided by University of Waterloo, Department of Economics in its series Working Papers with number 98002.
Date of creation: Nov 1997
Date of revision: Nov 1997
Other versions of this item:
- Robert A. Amano & Tony S. Wirjanto, 1998. "Government Expenditures and the Permanent-Income Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 719-730, July.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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