Revealed preference tests of indirect and homothetic weak separability of financial assets, consumption and leisure
Per Hjertstrand and
James L. Swofford
Journal of Financial Stability, 2019, vol. 42, issue C, 108-114
Hjertstrand et al. (2016) recently tested weak separability of the direct utility function using U.S. data on consumption goods, leisure, financial and monetary assets. This paper investigates different forms of weak separability. While weak separability of the direct utility function provides the best fit, by allowing for small errors in the data we find some evidence that financial and monetary assets can be rationalized by a weakly separable indirect utility function. Further we find that M1, a modern analog of money defined by Friedman and Schwartz (1963) and narrow and broader real sector aggregates can be rationalized by indirect weak separability. We also find that M1 and real sector aggregates can be rationalized by homothetic weak separability.
Keywords: Direct weak separability; Homothetic weak separability; Indirect weak separability; Monetary aggregation (search for similar items in EconPapers)
JEL-codes: C43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:42:y:2019:i:c:p:108-114
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