Estimating Intertemporal and Intratemporal Substitutions When Both Income and Substitution Effects are Present: The Role of Durable Goods Report as inadecuate




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Abstract

Homotheticity induces a dramatic statistical bias in the estimates of the intratemporal and intertemporal substitutions. I find potent support in favor of nonhomotheticity in aggregate consumption data, with nondurable goods being necessities and durable goods luxuries. I obtain the intertemporal substitutability negligible 0.04, a magnitude close to Hall 1988 original estimate, and the intratemporal substitutability between nondurable goods and service flow from the stock of durable goods small as well 0.18. Despite that, due to the secular decline of the rental cost, the budget share of durable goods appears trendless.



Item Type: MPRA Paper -

Original Title: Estimating Intertemporal and Intratemporal Substitutions When Both Income and Substitution Effects are Present: The Role of Durable Goods-

Language: English-

Keywords: Durable goods; Intertemporal substitution; Intratemporal substitution; Nonhomotheticity-

Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the MacroeconomyE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth-





Author: Pakos, Michal

Source: https://mpra.ub.uni-muenchen.de/43534/







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