IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey

Listed author(s):
  • Orazio P. Attanasio
  • Guglielmo Weber

In this paper we show that some of the predictions of models of consumer intertemporal optimization are not inconsistent with the patterns of non-durable expenditure observed in US household-level data. Our results and our approach are new in several respects. First, we use the only US micro data set which has direct and complete information on household consumption. The microeconomic data sets used in most of the consumption literature so far contained either very limited information on consumption (like the PSID) or none at all, in which case consumption had to be obtained indirectly from income and changes in assets. Second, we propose a flexible and novel specification of preferences which is easily estimable and allows a general treatment jof multiple commodities. We show that aggregation over commodities can be important, both theoretically and in practice. Third, we present empirical results that show that it is possible to find a reasonably simple specification of preferences, which controls for the effects of changes in demographics and labor supply behavior over the life cycle and which is not rejected by the available data. On our preferred specification, we obtain sharp estimates of key behavioral parameters (including the elasticity of intertemporal substitution) and no rejections of theoretical restrictions. Our results contrast sharply with most of the previous evidence, which has typically been interpreted as rejection of the theory. We show that previous rejections can be explained by the simplifying assumptions made to derive empirically tractable equations. We also show that results obtained using food consumption or aggregate data can be extremely misleading.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w4795.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4795.

as
in new window

Length:
Date of creation: Jul 1994
Publication status: published as Journal of Political Economy, 1992.
Handle: RePEc:nbr:nberwo:4795
Note: EFG
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Attanasio, O.P. & Browning, M., 1993. "Consumption Over the Life Cycle and Over the Business Cycle," Papers 9314, Tilburg - Center for Economic Research.
  2. Miron, Jeffrey A, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1258-1279, December.
  3. Orazio Attanasio, 1993. "A cohort analysis of saving behaviour by US households," IFS Working Papers W93/04, Institute for Fiscal Studies.
  4. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-708, May.
  5. N/A, 1985. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 111(1), pages 29-47, February.
  6. David Martin, 1991. "Was neo-classical economics composed backwards?," Forum for Social Economics, Springer;The Association for Social Economics, vol. 21(1), pages 22-34, September.
  7. anonymous, 1985. "A quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, august.
  8. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  9. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, october.
  10. N/A, 1985. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 114(1), pages 6-32, November.
  11. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  12. -, 1985. "Economía brasileña en 1985: informe estadístico," Oficina de la CEPAL en Brasilia (Estudios e Investigaciones) 28296, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  13. anonymous, 1987. "Review of domestic and external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 50, march.
  14. -, 1991. "Economic survey of the United States, 1990," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28888, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  15. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, july.
  16. John Y. Campbell & N. Gregory Mankiw, 1987. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  17. Britton,Andrew J. C., 1991. "Macroeconomic Policy in Britain 1974–1987," Cambridge Books, Cambridge University Press, number 9780521410045, May.
  18. N/A, 1985. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 112(1), pages 5-18, May.
  19. N/A, 1987. "Calendar of Main Economic Events, 1986," National Institute Economic Review, National Institute of Economic and Social Research, vol. 119(1), pages 79-93, February.
  20. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  21. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
  22. Peter C. B. Phillips & Mico Loretan, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 407-436.
  23. Joseph G. Altonji & Aloysius Siow, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 293-328.
  24. 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.
  25. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, april.
  26. N/A, 1987. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 120(1), pages 6-20, May.
  27. N/A, 1987. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 119(1), pages 6-23, February.
  28. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
  29. Cimmyt, 1991. "CIMMYT Economics: An Agenda for the Future," Miscellaneous Reports 232171, CIMMYT: International Maize and Wheat Improvement Center.
  30. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, december.
  31. anonymous, 1985. "Quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, november.
  32. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, june.
  33. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
  34. N/A, 1985. "Chapter 1. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 111(1), pages 5-28, February.
  35. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
  36. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2.
  37. anonymous, 1985. "Quarterly review of the external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, july.
  38. N/A, 1987. "Chaptefi III. the British Economy Since 1979," National Institute Economic Review, National Institute of Economic and Social Research, vol. 122(1), pages 41-46, November.
  39. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, july.
  40. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, march.
  41. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, may.
  42. Stephen P. Zeldes, "undated". "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  43. repec:fth:harver:1466 is not listed on IDEAS
  44. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, june.
  45. N/A, 1985. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 113(1), pages 5-19, August.
  46. Moffitt, Robert, 1993. "Identification and estimation of dynamic models with a time series of repeated cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 99-123, September.
  47. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, september.
  48. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, january.
  49. anonymous, 1991. "Regional economic development and public policy," Monograph, Federal Reserve Bank of Kansas City, number 1991redap, April.
  50. N/A, 1991. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 136(1), pages 10-33, May.
  51. N/A, 1987. "Chapter I. the Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 122(1), pages 7-23, November.
  52. 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.
  53. 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.
  54. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
  55. Sheila A. Martin & Richard McHugh & Stanley R. Johnson, 1991. "State Economic Development Information Systems," Center for Agricultural and Rural Development (CARD) Publications 91-sr55, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  56. -, 1987. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27977, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  57. Orazio P. Attanasio & Martin Browning, 1994. "Testing the life cycle model consumption: what can we learn from micro and macro data?," Investigaciones Economicas, Fundación SEPI, vol. 18(3), pages 433-463, September.
  58. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, august.
  59. N/A, 1985. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 113(1), pages 20-30, August.
  60. N/A, 1991. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 135(1), pages 9-26, February.
  61. Orazio P. Attanasio, 1998. "Cohort Analysis of Saving Behavior by U.S. Households," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 575-609.
  62. N/A, 1985. "New World Economic Order," India Quarterly: A Journal of International Affairs, Indian Council of World Affairs, vol. 41(1), pages 158-162, January.
  63. -, 1991. "Macro-economic model of Jamaica," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 29868, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  64. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, november.
  65. N/A, 1987. "Chapter I. the Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 121(1), pages 6-20, August.
  66. Anonymous, 1991. "Economic forecasts," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 54, march.
  67. Anonymous, 1991. "New Zealand economic chronology 1990," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 54, june.
  68. N/A, 1985. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 112(1), pages 19-30, May.
  69. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, april.
  70. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348 National Bureau of Economic Research, Inc.
  71. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, august.
  72. N/A, 1991. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 137(1), pages 7-23, August.
  73. anonymous, 1985. "A quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, may.
  74. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, febuary.
  75. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
  76. -, 1991. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 28069, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  77. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, november.
  78. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September.
  79. -, 1991. "Nota sobre la economía brasileña, 1990," Oficina de la CEPAL en Brasilia (Estudios e Investigaciones) 28327, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  80. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, october.
  81. anonymous, 1987. "New Zealand economic chronology 1986," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 50, march.
  82. anonymous, 1985. "New Zealand economic chronology 1984," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, january.
  83. -, 1985. "Economía brasileña en 1985: informe coyuntural," Oficina de la CEPAL en Brasilia (Estudios e Investigaciones) 28297, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  84. Anonymous, 1985. "Agricultural Economics Reference Room," Staff Papers 200904, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  85. anonymous, 1985. "Quarterly review of the external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, october.
  86. -, 1991. "International economic highlights 1990," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28929, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  87. N/A, 1985. "Calendar of Economic Events July-September 1985," National Institute Economic Review, National Institute of Economic and Social Research, vol. 114(1), pages 90-104, November.
  88. anonymous, 1985. "The open economy and competitive markets," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, april.
  89. Blundell, R. & Browning, M. & Meghir, C., 1989. "A Microeconometric Model Of Intertemporal Substitution And Consumer Demand," The Warwick Economics Research Paper Series (TWERPS) 324, University of Warwick, Department of Economics.
  90. N/A, 1985. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 114(1), pages 33-45, November.
  91. Hayashi, Fumio & Sims, Christopher A, 1983. "Nearly Efficient Estimation of Time Series Models with Predetermined, but Not Exogenous, Instruments," Econometrica, Econometric Society, vol. 51(3), pages 783-798, May.
  92. anonymous, 1985. "Developments in the international economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, febuary.
  93. Orazio P. Attanasio & Guglielmo Weber, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 631-649.
  94. anonymous, 1985. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, september.
  95. Anonymous, 1991. "Economic Forecasts," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 54, september.
  96. Karen Browning & Darren Gibbs, 1991. "Monetary and economic developments," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 54, december.
  97. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, may.
  98. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  99. anonymous, 1985. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 48, december.
  100. -, 1987. "Planning for a fresh social and economic dynamic," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), pages -, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4795. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.