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May, 2014

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: Empirical results

Our results are presented in three parts. We first describe the data sets used, then provide a graphical illustration of the main feature of the cross-sectional variance of consumption and marginal utility, and finally present the econometric results. Some of …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: Measuring marginal utility and its cross sectional variance 2

Their methodology therefore involves identifying an age profile of the cross-sectional variance. This amounts to disentangling age, time and cohort effects. Since these variables are perfectly collinear (time = cohort + age), Deaton and Paxson normalize the time effects to …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: Measuring marginal utility and its cross sectional variance

The problem that the parameter vector в is unknown can be handled in several ways. The simplest strategy is to drop the z variables, and to regress the variance of log consumption on the lagged variance. A more satisfactory measure …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: The empirical test 2

Suppose that the expectational error of the Euler equation is described by €,t+1 “ allPt+\ + where \j/t+! is an aggregate shock and Tju+j an idiosyncratic shock assumed to be i.i.d. across individuals and over time and independent of at …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: The empirical test

Suppose now that we can identify one or more population groups whose membership is fixed over time. The cross sectional variances in equation (8) can then be estimated by computing the corresponding sample variances within groups at different time periods. …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: The cross-sectional variance of marginal utility 2

If the instantaneous utility function is isoelastic, function of the logarithm of consumption: where a is the elasticity of intertemporal substitution, ei t+x an expectational error and ф( f+1 the higher conditional moments of the distribution of consumption in equation …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: The cross-sectional variance of marginal utility

We take off from Deaton and Paxson and their exploration of the implications of the permanent income hypothesis for the evolution of consumption and income inequality. It is well known that if the utility function is quadratic and if the …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: Introduction 2

The benefits are not cost-free, however. The test we propose is based on assumptions about the properties of the residuals of the Euler equation. A rejection of the null hypothesis could therefore be due to the failure of these assumptions, …Continue reading →

INTERTEMPORAL CHOICE AND THE CROSS-SECTIONAL VARIANCE OF MARGINAL UTILITY: Introduction

One remarkable prediction of the permanent income hypothesis with certainty equivalence is that consumption inequality within a group of households with fixed membership should, on average and over long periods of time, increase with age. By this model, the change …Continue reading →

Are Real Devaluations Contractionary? Conclusion

The main findings of the study are that real exchange rate depreciations put expansionary effects on the output gap in Pakistan. The results also showed that movements towards a more floating exchange rate system also increased the output gap in …Continue reading →

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