Estimating intertemporal and intratemporal substitutions when both income and substitution effects are present: the role of durable goods

0361643 - NHÚ 2012 RIV US eng J - Journal Article
Pakoš, Michal
Estimating intertemporal and intratemporal substitutions when both income and substitution effects are present: the role of durable goods.
Journal of Business & Economic Statistics. Roč. 29, č. 3 (2011), s. 439-454. ISSN 0735-0015. E-ISSN 1537-2707
Institutional research plan: CEZ:AV0Z70850503
Keywords : durable goods * intertemporal substitution * nonhomotheticity
Subject RIV: AH - Economics
Impact factor: 1.779, year: 2011

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’s (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.
Permanent Link: http://hdl.handle.net/11104/0198910