Consumption Growth, the Interest Rate and Aggregation
In this paper we present empirical evidence on aggregation problems with Euler equations for consumption. Our main results are: estimates of the elasticity of intertemporal substitution for consumption are consistently lower for aggregate data than for average cohort data and the theoretical model is statistically rejected on aggregate data, not rejected on average cohort data. In trying to explain these differences we find that a major role is played by the non-linearity of the estimable equation and by omitted demographic factors (normally unobservable on aggregate data). However, even when these sources of aggregation bias are corrected for, the estimates of the elasticity of intertemporal substitution obtained from aggregate data remain lower than those obtained from average cohort data, and excess sensitivity tests reject the implications of the model. This can be explained as the result of imposing identical coefficients to cohorts who differ in preferences and/or opportunity sets.
Volume (Year): 60 (1993)
Issue (Month): 3 ()
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:60:y:1993:i:3:p:631-649.. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.