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Testing for intertemporal nonseparability

  • Ian Crawford


    (Institute for Fiscal Studies and University of Oxford)

  • Matthew Polisson


    (Institute for Fiscal Studies and University of Leicester)

This paper presents a nonparametric analysis of a common class of intertemporal models of consumer choice that relax consumption independence. Within this class and in the absence of any functional form restrictions on instantaneous preferences, we compare the revealed preference conditions for rational habit formation and rational anticipation. We show that these models are nonparametrically equivalent in the presence of finite date sets composed of prices, interest rates, and consumption choices.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/19.

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Date of creation: Aug 2013
Date of revision:
Handle: RePEc:ifs:ifsewp:13/19
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  1. Browning, Martin, 1989. "A Nonparametric Test of the Life-Cycle Rational Expectations Hypothesis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 979-92, November.
  2. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
  4. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
  5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  6. Kubler, Felix, 2004. "Is intertemporal choice theory testable?," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 177-189, February.
  7. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  8. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
  9. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
  10. Jevons, William Stanley, 1871. "The Theory of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number jevons1871.
  11. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers 97-37, C.V. Starr Center for Applied Economics, New York University.
  12. Thomas Demuynck & Ewout Verriest, 2013. "I’Ll Never Forget My First Cigarette: A Revealed Preference Analysis Of The “Habits As Durables” Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 717-738, 05.
  13. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  14. Diewert, W E, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 419-25, July.
  15. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  16. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  17. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
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