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A Microeconomic Model of Intertemporal Substitution and Consumer Demand

Author

Listed:
  • 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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    References listed on IDEAS

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    1. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
    2. 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.
    3. 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.
    4. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-999, September.
    5. Blundell, Richard William, 1987. "Econometric Approaches to the Specification of Life-Cycle Labour Supply and Commodity Demand Behaviour," CEPR Discussion Papers 150, Centre for Economic Policy Research.
    6. 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.
    7. Robert E. Hall, 1988. "Substitution over Time in Work and Consumption," NBER Working Papers 2789, National Bureau of Economic Research, Inc.
    8. 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.
    9. 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.
    10. 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.
    11. Attanasio, O.P. & Weber, G., 1989. "Consumption, Productivity Growth and the Interest Rate," Discussion Paper 1989-25, Tilburg University, Center for Economic Research.
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    Cited by:

    1. Attanasio, O.P. & Weber, G., 1989. "Consumption, Productivity Growth And The Interest Rate," Papers 8925, Tilburg - Center for Economic Research.
    2. Yifan Wu & Ramesh Johari & Vasilis Syrgkanis & Gabriel Y. Weintraub, 2024. "Switchback Price Experiments with Forward-Looking Demand," Papers 2410.14904, arXiv.org.

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