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A Microeconomic Model of Intertemporal Substitution and Consumer Demand

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  • R. Blundell
  • M. Browning
  • C. Mehgir

Abstract

In this paper we investigate the relationship between within-period preferences and the degree of intertemporal substitution. We first present a theoretical discussion which argues that the form of within-period preferences and the way these differ across consumers may have important consequences for the formulation and specification of intertemporal models. We then apply this methodology to a detailed study of disaggregate household expenditure patterns using a pooled cross-section of some 70,000 households across 15 years. Our objective is to assess the degree of intertemporal substitution across different household types avoiding aggregation bias and accounting for nonadditive within-period preferences and nonlinearity in Engel curves.

Suggested Citation

  • R. Blundell & M. Browning & C. Mehgir, 1989. "A Microeconomic Model of Intertemporal Substitution and Consumer Demand," Department of Economics Working Papers 1989-02, McMaster University.
    • Handle: RePEc:mcm:deptwp:1989-02
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    File URL: http://socserv.socsci.mcmaster.ca/econ/rsrch/papers/archive/89-13.pdf
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    References listed on IDEAS

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    1. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 176-215, June.
    2. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
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    4. Attanasio, O.P. & Weber, G., 1989. "Consumption, Productivity Growth And The Interest Rate," Papers 8925, Tilburg - Center for Economic Research.
    5. Browning, Martin, 1986. "The costs of using Frisch demand functions that are additive in the marginal utility of expenditure," Economics Letters, Elsevier, vol. 21(3), pages 205-207.
    6. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-999, September.
    7. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    8. Blundell, Richard William, 1987. "Econometric Approaches to the Specification of Life-Cycle Labour Supply and Commodity Demand Behaviour," CEPR Discussion Papers 150, C.E.P.R. Discussion Papers.
    9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    10. Robert E. Hall, 1988. "Substitution over Time in Work and Consumption," NBER Working Papers 2789, National Bureau of Economic Research, Inc.
    11. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
    12. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
    13. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    1. Attanasio, O.P. & Weber, G., 1989. "Consumption, Productivity Growth And The Interest Rate," Papers 8925, Tilburg - Center for Economic Research.

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