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ON THE AGGREGATION OF EULER EQUATIONS FOR CONSUMPTION IN SIMPLE OVERLAPPING-GENERATIONS MODELS

ATTANASIO, OP; WEBER, G; (1995) ON THE AGGREGATION OF EULER EQUATIONS FOR CONSUMPTION IN SIMPLE OVERLAPPING-GENERATIONS MODELS. ECONOMICA , 62 (248) 565 - 576.

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Abstract

If consumers have finite lives, the aggregate consumption growth equation is affected by entries and exits (births and deaths). We use two- and three-period overlapping-generations (OLG) models to show that entries and exits produce a relationship between aggregate consumption growth and the interest rate that is fundamentally different from the individual Euler equation for consumption. If aggregate data are used to estimate an 'aggregate' Euler equation, under plausible assumptions we show that the estimate of the elasticity of intertemporal substitution is downward biased and that consumption growth exhibits excess sensitivity to labour income.

Type:Article
Title:ON THE AGGREGATION OF EULER EQUATIONS FOR CONSUMPTION IN SIMPLE OVERLAPPING-GENERATIONS MODELS
Keywords:STOCHASTIC IMPLICATIONS, HYPOTHESIS
UCL classification:UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics

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