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Intertemporal choice and the cross-sectional variance of marginal utility

Attanasio, O.; Jappelli, T.; (1998) Intertemporal choice and the cross-sectional variance of marginal utility. (NBER Working Papers 6560 ). National Bureau of Economic Research: Cambridge, US. Green open access

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The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.

Type: Report
Title: Intertemporal choice and the cross-sectional variance of marginal utility
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.nber.org/papers/w6560
Language: English
Additional information: Please see http://eprints.ucl.ac.uk/15221/ for the version published in the Review of Economics and Statistics, and htpp://eprints.ucl.ac.uk/15222/ for the CSEF Working Paper version
Keywords: JEL classification: E21
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/15220
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