Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations

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

Research output: Working paperDiscussion paperOther research output

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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

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Welfare function
Subjective expectations
Intertemporal elasticity of substitution
Predictive power
Cross section
Euler equations
Household consumption

Keywords

  • Expectations
  • Consumption
  • Euler equations

Cite this

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

Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations. / Kapteyn, A.; Kleinjans, K.; van Soest, A.H.O.

Tilburg : Econometrics, 2008. (CentER Discussion Paper; Vol. 2008-85).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations

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AU - Kleinjans, K.

AU - van Soest, A.H.O.

N1 - Subsequently published in Journal of Economic Behavior and Organization, 2009 Pagination: 30

PY - 2008

Y1 - 2008

N2 - 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.

AB - 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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KW - Euler equations

M3 - Discussion paper

VL - 2008-85

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BT - Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations

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CY - Tilburg

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Kapteyn A, Kleinjans K, van Soest AHO. Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations. Tilburg: Econometrics. 2008. (CentER Discussion Paper).