Intertemporal consumption with directly measured welfare functions and subjective expectations

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

Research output: Contribution to journalArticleScientificpeer-review

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
Pages (from-to)179-200
JournalJournal of Economic Behavior and Organization
Volume39
Issue number2
Publication statusPublished - 2009

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

Cite this

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title = "Intertemporal consumption with directly measured welfare functions and subjective expectations",
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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Intertemporal consumption with directly measured welfare functions and subjective expectations. / Kapteyn, A.; Kleinjans, K.; van Soest, A.H.O.

In: Journal of Economic Behavior and Organization, Vol. 39, No. 2, 2009, p. 179-200.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Intertemporal consumption with directly measured welfare functions and subjective expectations

AU - Kapteyn, A.

AU - Kleinjans, K.

AU - van Soest, A.H.O.

N1 - Appeared earlier as CentER DP 2008-85

PY - 2009

Y1 - 2009

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.

M3 - Article

VL - 39

SP - 179

EP - 200

JO - Journal of Economic Behavior & Organization

JF - Journal of Economic Behavior & Organization

SN - 0167-2681

IS - 2

ER -