Non-Linear Modelling of Household Consumption: an Examination of a Closed-Form Life-Cycle Model

Rebecca Riley and Dr Martin Weale ()

No 206, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: We use successive datasets from the U.K. Family Expenditure Survey to estimate a closed form consumption function for households facing uncertain future income. The closed form is derived from a model of absolute risk aversion modified to reflect differences in consumers' circumstances (quasi-relative risk aversion). Proper adjustment is made for demographic effects. Plausible estimates for the intertemporal substitution parameter are found. However an encompassing test shows that a naive Keynesian model has some residual explanatory power.

Date: 2003-05
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:206

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