Estimating Intertemporal and Intratemporal Substitutions When Both Income and Substitution Effects are Present: The Role of Durable Goods

Michal Pakos

MPRA Paper from University Library of Munich, Germany

Abstract: Homotheticity induces a dramatic statistical bias in the estimates of the intratemporal and intertemporal substitutions. I find potent support in favor of nonhomotheticity in aggregate consumption data, with nondurable goods being necessities and durable goods luxuries. I obtain the intertemporal substitutability negligible (0.04), a magnitude close to Hall (1988) original estimate, and the intratemporal substitutability between nondurable goods and service flow from the stock of durable goods small as well (0.18). Despite that, due to the secular decline of the rental cost, the budget share of durable goods appears trendless.

Keywords: Durable goods; Intertemporal substitution; Intratemporal substitution; Nonhomotheticity (search for similar items in EconPapers)
JEL-codes: E21 E44 (search for similar items in EconPapers)
Date: 2011-07-01
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Citations: View citations in EconPapers (19)

Published in Journal of Business and Economic Statistics 3.29(2011): pp. 439-454

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Related works:
Working Paper: Estimating intertemporal and intratemporal substitutions when both income and substitution effects are present: the role of durable goods (2011)
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