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Intertemporal Consumption and Consumer Demand

Author

Listed:
  • Keith R. McLaren
  • H. Youn Kim
  • Russel J. Cooper

Abstract

This paper integrates two strands of studies on consumer demand and consumption and provides a unified framework for analyzing consumer behavior employing an intertemporal two-stage budgeting procedure. We take a modified AIDS framework for the demand system and derive a general Euler equation by allowing for life-cycle behavior and precautionary saving. We also investigate liquidity constraints and habit formation in consumption behavior. The demand system and the Euler equation constitute a system of recursive equations with cross-equation parameter restrictions. The system is estimated jointly taking explicit account of model-compatible autocorrelation

Suggested Citation

  • Keith R. McLaren & H. Youn Kim & Russel J. Cooper, 2004. "Intertemporal Consumption and Consumer Demand," Econometric Society 2004 Australasian Meetings 152, Econometric Society.
  • Handle: RePEc:ecm:ausm04:152
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    More about this item

    Keywords

    consumer demand; Euler equation; two-stage budgeting;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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