Aggregation and Closed-Form Results for Nonhomothetic CES Preferences

Clement Bohr, Martí Mestieri and Emre Yavuz

No 18606, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide four novel results for nonhomothetic Constant Elasticity of Substitution preferences (Hanoch, 1975). First, we derive a closed-form representation of the expenditure function of nonhomothetic CES under relatively flexible distributional assumptions of demand and price distribution parameters. Second, we characterize aggregate demand from heterogeneous households in closed-form, assuming that household total expenditures follow an empirically plausible distribution. Third, we leverage these results to study the Euler equation arising from standard intertemporal consumption-saving problems featuring within-period nonhomothetic CES preferences. Finally, we show that nonhomothetic CES expenditure shares arise as the solution of a discrete-choice logit problem.

JEL-codes: C4 D11 D31 E21 E25 (search for similar items in EconPapers)
Date: 2023-11
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