Intertemporal consumption with directly measured welfare functions and subjective expectations
Kapteyn,A. Kleinjans,K. van Soest,A.H.O.
Kapteyn,A.
Kleinjans,K.
van Soest,A.H.O.
Abstract
Euler equation estimation of intertemporal consumption models requires many, often unverifiable assumptions. These include assumptions on expectations and preferences. We aim at reducing some of these requirements by using direct subjective information on respondents’ preferences and expectations. The results suggest that individually measured welfare functions and expectations have predictive power for the variation in consumption across households. Furthermore, estimates of the intertemporal elasticity of substitution based on the estimated welfare functions are plausible and of a similar order of magnitude as other estimates found in the literature. The model favored by the data only requires cross-section data for estimation.
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Appeared earlier as CentER DP 2008-85
Date
2009
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Kapteyn, A, Kleinjans, K & van Soest, A H O 2009, 'Intertemporal consumption with directly measured welfare functions and subjective expectations', Journal of Economic Behavior and Organization, vol. 39, no. 2, pp. 179-200.