Do Demographics Prevent Consumption Aggregates From Refflecting Micro-Level Preferences?

Christos Koulovatianos, Carsten Schroeder () and Ulrich Schmidt
Additional contact information
Carsten Schroeder: Free University of Berlin
Authors registered in the RePEc Author Service: Carsten Schröder

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: Most simulated micro-founded macro models use solely consumer-demand aggregates in order to estimate preference parameters of a representative consumer, for use in policy evaluation. Focusing on dynamic models with time-separable preferences, we show that aggregation holds if, and only if, momentary utility functions fall in the Identical-Shape Harmonic Absolute-Risk Aversion (ISHARA) utility class, identifying which parameters of ISHARA utility functions are allowed to vary over time. Given this theoretical result, it should be easy to empirically reject the aggregation properties that the macroeconomic representative-consumer identification approach requires: it suffices to show that permanent incomes guaranteeing the same living standard across households of different size violate an affine relationship. In order to test the validity of this a¢ ne equation, we develop a vignette survey that produces appropriate data without demand-estimation restrictions imposed by models. Surprisingly, in six countries, this equation is not rejected, lending support to using consumer-demand aggregates.

Keywords: Linear Aggregation; Dynamic Representative Consumer; Generalized Absolute Equivalence Scale Exactness (GAESE); equivalent Incomes; Vignette Survey. (search for similar items in EconPapers)
JEL-codes: C42 D11 D12 D31 D91 E01 E21 I32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://wwwen-archive.uni.lu/content/download/1088 ... el%20Preferences.pdf (application/pdf)

Related works:
Journal Article: Do demographics prevent consumption aggregates from reflecting micro-level preferences? (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:18-12

Access Statistics for this paper

More papers in DEM Discussion Paper Series from Department of Economics at the University of Luxembourg Contact information at EDIRC.
Bibliographic data for series maintained by Marina Legrand ().