IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Towards A More General Approach To Testing The Time Additivity Hypothesis

  • Gary Wong
Registered author(s):

    A new procedure is proposed for re-examining the assumption of additivity of preferences over time which, although untenable, is usually maintained in intertemporal analyses of consumption and labour supply. The method is an extension of a famous work by Browning (1991). However, it is more general in permitting the estimation of Frisch demands, which are explicit in an unobservable variable (price of utility), but may lack a closed form representation in terms of observable variables such as prices and total outlay. It also makes an extensive use of duality theory to solve the endogeneity problem encountered in Browning\'s study. Applying this method with an appropriate estimator to the Australian disaggregate data, we find that the intertemporal additivity hypothesis is decisively rejected, which is consistent with Browning\'s conclusion. Results also indicate that the effects of lagged and future prices in determining current consumption decisions are insubstantial.

    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:
    Download Restriction: no

    Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 098.

    in new window

    Date of creation: 20 Sep 2001
    Date of revision:
    Handle: RePEc:qut:dpaper:098
    Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
    Web page:

    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. Spinnewyn, Frans, 1981. "Rational habit formation," European Economic Review, Elsevier, vol. 15(1), pages 91-109.
    2. David De La Croix & Jean-Pierre Urbain, 1998. "Intertemporal substitution in import demand and habit formation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(6), pages 589-612.
    3. Pashardes, Panos, 1986. "Myopic and Forward Looking Behavior in a Dynamic Demand System," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 387-97, June.
    4. Cooper, Russell J., 1996. "Optimal consumption-wealth relationships derived by consumer intertemporal profit maximisation," Economics Letters, Elsevier, vol. 50(3), pages 341-347, March.
    5. Beach, Charles M & MacKinnon, James G, 1979. "Maximum Likelihood Estimation of Singular Equation Systems with Autoregressive Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 459-64, June.
    6. Browning, Martin, 1997. "Interpreting the results of empirical analyses of intertemporal allocation: An identification problem," Economics Letters, Elsevier, vol. 56(1), pages 41-44, September.
    7. Martin J. Browning, 1989. "The Intertemporal Allocation of Expenditure on Non-durables, Services, and Durables," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 22-36, February.
    8. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-68, August.
    9. Joseph G. Altonji & John C. Ham, 1990. "Intertemporal Substitution, Exogeneity, and Surprises: Estimating Life Cycle Models for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 1-43, February.
    10. Kim, H Youn, 1993. "Frisch Demand Functions and Intertemporal Substitution in Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 445-54, August.
    11. Dunn, Kenneth B. & Singleton, Kenneth J., 1986. "Modeling the term structure of interest rates under non-separable utility and durability of goods," Journal of Financial Economics, Elsevier, vol. 17(1), pages 27-55, September.
    12. Cooper, Russel J., 1994. "On the exploitation of additional duality relationships in consumer demand analysis," Economics Letters, Elsevier, vol. 44(1-2), pages 73-77.
    13. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
    14. Bover, Olympia, 1991. "Relaxing Intertemporal Separability: A Rational Habits Model of Labor Supply Estimated from Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 85-100, January.
    15. Pollak, Robert A & Wales, Terrence J, 1969. "Estimation of the Linear Expenditure System," Econometrica, Econometric Society, vol. 37(4), pages 611-28, October.
    16. Cooper, Russel J & McLaren, Keith R, 1980. "Atemporal, Temporal and Intertemporal Duality in Consumer Theory," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 599-609, October.
    17. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    18. Selvanathan, Saroja, 1991. "The Reliability of ML Estimators of Systems of Demand Equations: Evidence from OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 346-53, May.
    19. Browning, Martin, 1991. "A Simple Nonadditive Preference Structure for Models of Household Behavior over Time," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 607-37, June.
    20. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839 Elsevier.
    21. Cooper, Russel J & McLaren, Keith R, 1993. "Approaches to the Solution of Intertemporal Consumer Demand Models," Australian Economic Papers, Wiley Blackwell, vol. 32(60), pages 20-39, June.
    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:qut:dpaper:098. 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: (Angela Fletcher)

    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.