Modelling movements in individual consumption: A time series analysis of grouped data

We characterize the time-series properties of group-level consumption, income, and interest rates using microdata. We relate the coefficients of moving average representations to structural parameters of theoretical models of consumption behavior. Using long time series of cross sections to construct synthetic panel data for the United Kingdom, we find that for high-educated individuals the Euler equation restrictions are not rejected, the elasticity of intertemporal substitution is higher than one, and there is evidence of “excess smoothness” of consumption. Low-educated individuals, conversely, exhibit excess sensitivity of consumption to past income, and the elasticity of intertemporal substitution is not statistically different from zero.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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