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Intertemporal Substitution, Exogeneity, and Surprises: Estimating Life Cycle Models for Canada

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  • Joseph G. Altonji
  • John C. Ham

Abstract

The authors estimate consumption and labor supply models for Canada using U.S. variables as instruments instead of lagged Canadian variables. The results suggest that the endogeneity of lagged variables has not been a serious problem in previous studies. They also develop estimation methods for use when the agents' information sets are unknown and the model contains the realization and the innovation of an endogenous variable. The authors use the approach to estimate a labor supply model combining intertemporal substitution and job search, and to estimate the labor supply and consumption responses to marginal utility of income changes induced by wage, price, and interest rate surprises.

Suggested Citation

  • Joseph G. Altonji & John C. Ham, 1990. "Intertemporal Substitution, Exogeneity, and Surprises: Estimating Life Cycle Models for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 1-43, February.
  • Handle: RePEc:cje:issued:v:23:y:1990:i:1:p:1-43
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    Citations

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    Cited by:

    1. James P. Ziliak & Thomas J. Kniesner, 2005. "The Effect of Income Taxation on Consumption and Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 769-796, October.
    2. Jorge González-Chapela, 2007. "On the Price of Recreation Goods as a Determinant of Male Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 795-824.
    3. John C. Ham & Kevin T. Reilly, 2013. "Implicit Contracts, Life Cycle Labor Supply, And Intertemporal Substitution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1133-1158, November.
    4. Beine, Michel & Bismans, Francis & Docquier, Frederic & Laurent, Sebastien, 2001. "Life-cycle behaviour of US households: A nonlinear GMM estimation on pseudopanel data," Journal of Policy Modeling, Elsevier, vol. 23(7), pages 713-729, October.
    5. Fabio Ghironi, 2000. "Towards new open economy macroeconometrics," Staff Reports 100, Federal Reserve Bank of New York.
    6. Pourpourides, Panayiotis M., 2011. "Implicit contracts and the cyclicality of the skill-premium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 963-979, June.
    7. H. Kim & Keith McLaren & K. Wong, 2013. "Empirical demand systems incorporating intertemporal consumption dynamics," Empirical Economics, Springer, vol. 45(1), pages 349-370, August.
    8. Gary Wong, 2001. "Towards A More General Approach To Testing The Time Additivity Hypothesis," School of Economics and Finance Discussion Papers and Working Papers Series 098, School of Economics and Finance, Queensland University of Technology.
    9. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.

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