Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations

A. Kapteyn, K. Kleinjans, A.H.O. van Soest

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages30
Volume2008-85
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-85

Keywords

  • Expectations
  • Consumption
  • Euler equations

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    Kapteyn, A., Kleinjans, K., & van Soest, A. H. O. (2008). Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations. (CentER Discussion Paper; Vol. 2008-85). Econometrics.