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MODELING MOVEMENTS IN INDIVIDUAL CONSUMPTION: A TIME‐SERIES ANALYSIS OF GROUPED DATA
Author(s) -
Attanasio Orazio P.,
Borella Margherita
Publication year - 2014
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12079
Subject(s) - econometrics , economics , consumption (sociology) , microdata (statistics) , elasticity of intertemporal substitution , time series , income elasticity of demand , panel data , smoothness , permanent income hypothesis , consumption function , elasticity (physics) , mathematics , statistics , mathematical economics , microeconomics , macroeconomics , thermodynamics , growth model , mathematical analysis , demography , social science , population , physics , production (economics) , sociology , market liquidity , census
We characterize the time‐series properties of group‐level consumption, income, and interest rates using microdata. We relate the coefficients of moving average representations to structural parameters of theoretical models of consumption behavior. Using long time series of cross sections to construct synthetic panel data for the United Kingdom, we find that for high‐educated individuals the Euler equation restrictions are not rejected, the elasticity of intertemporal substitution is higher than one, and there is evidence of “excess smoothness” of consumption. Low‐educated individuals, conversely, exhibit excess sensitivity of consumption to past income, and the elasticity of intertemporal substitution is not statistically different from zero.