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Stochastic Components of Individual Consumption: A Time Series Analysis of Grouped Data

Listed author(s):
  • Orazio Attanasio
  • Margherita Borella

In this paper we propose a method to characterize the time series properties of individual consumption, income and interest rates using micro data, as studies in labour economics have characterized the time series properties of hours and earnings. Our approach, however, does not remove aggregate shocks. Having estimated the parameters of a flexible multivariate MA representation we relate the coefficients of our statistical model to structural parameters of theoretical models of consumption behaviour. Our approach offers a unifying framework that encompasses the Euler equation approach to the study of consumption and the studies that relate innovations to income to innovations to consumption, such as those that have found the so-called excess smoothness of consumption. Using a long time series of cross sections to construct synthetic panel data for the UK, we estimate our model and find that the restriction of Euler equations are typically not rejected, while the data show 'excess smoothness'.

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File URL: http://www.nber.org/papers/w12456.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12456.

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Date of creation: Aug 2006
Handle: RePEc:nbr:nberwo:12456
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  7. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-1157, December.
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  27. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  28. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
  29. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-294, March.
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  33. Martin Browning & Thomas Crossley, 2003. "Shocks, Stocks and Socks," Department of Economics Working Papers 2003-07, McMaster University.
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