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Aggregation biases in empirical Euler consumption equations: evidence from Spanish data

Antonio Cutanda, Jose Labeaga and Juan Sanchis-Llopis
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Antonio Cutanda: Department of Economic Analysis, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain
Juan Sanchis-Llopis: Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain

No 1801, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: In this paper we investigate the implications of aggregation in empirical analyses of Euler equations for consumption. We compare the results obtained after estimating the samemodel, using total and non-durable microeconomic consumption household data, from themaximum aggregation level (National Accounts) to individual data from the SpanishExpenditure Survey (Encuesta Continua de Presupuestos Familiares). We also use thesurvey to build cohort and aggregate data to test the model using different aggregatemeasures of consumption. The results we obtain confirm the theoretical predictionssummarised in Blundell and Stoker (2005) as well as in previous empirical evidence, i.e.aggregation turns out to be crucial to study empirically Euler equations for consumption. The estimated EIS with aggregated data is biased as compared with the correspondingestimate with microeconomic data. Further, the size of the bias increased with the level ofaggregation.

Keywords: aggregation; intertemporal consumption; microeconomic data (search for similar items in EconPapers)
JEL-codes: D12 C43 E10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-01
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