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Martin Browning - One of the best experts on this subject based on the ideXlab platform.
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Estimating Intertemporal Allocation Parameters using Synthetic Residual Estimation
Review of Economic Studies, 2010Co-Authors: Sule Alan, Martin BrowningAbstract:We present a novel structural estimation procedure for models of Intertemporal Allocation. This is based on modelling expectations errors directly; we refer to it as synthetic residual estimation (SRE). The flexibility of SRE allows us to account for measurement error in consumption and for heterogeneity in Intertemporal Allocation parameters. An investigation of the small sample properties of the SRE estimator indicates that it dominates generalized method of moments (GMM) estimation of both exact and approximate Euler equations in the case when we have short panels and noisy consumption data. We apply SRE to two panels drawn from the Panel Study of Income Dynamics (PSID) and estimate the joint distribution of the discount factor and the elasticity of Intertemporal substitution. We reject strongly homogeneity of the discount factor and the elasticity of Intertemporal substitution. We find that, on average, the more educated are more patient and less willing to substitute Intertemporally than the less educated. Within education strata, patience and willingness to substitute are positively correlated. © 2010 The Review of Economic Studies Limited.
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Estimating Intertemporal Allocation Parameters using Simulated Expectation Errors
2006Co-Authors: Sule Alan, Martin BrowningAbstract:There is widespread agreement that given currently available data, we cannot accurately estimate the parameters of Intertemporal Allocation using GMM on Euler equations, whether they be exact or approximate. Our reading of this literature and our own results is that this is a small sample (strictly, short panel) problem. The alternative seems to be to move to full structural modelling. In the current state of the art this is cumbersome, fragile and unable to deal with signi…cant heterogeneity. We present a novel structural estimation procedure that is based on simulating expectation errors; we refer to it as Simulated Residual Estimation (SRE). We develop variants of the basic procedure that allow us to account for measurement error in consumption, the ‘news’in interest rate realisations and for heterogeneity in discount factors. An investigation of the small sample properties of the SRE estimator indicates that it dominates GMM estimation of both exact and approximate Euler equations in the case when we have short panels
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A working paper from April 1985: Which demand elasticities do we know and which do we need to know for policy analysis?☆
Research in Economics, 2005Co-Authors: Martin BrowningAbstract:Abstract This paper presents some results on the theory and estimation of Intertemporal Allocation mechanisms. The results rely heavily on the distinction between anticipated changes and unanticipated changes.
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elasticities do we know and which do we need to know for policy analysis
2005Co-Authors: Martin BrowningAbstract:This paper presents some results on the theory and estimation of Intertemporal Allocation mechanisms. The results rely heavily on the distinction between anticipated changes and unanticipated changes. q 2005 Published by Elsevier Ltd on behalf of University of Venice.
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Estimating Intertemporal Allocation Parameters using Simulated Residual Estimation
2003Co-Authors: Sule Alan, Martin BrowningAbstract:There is widespread agreement that given currently available data, we cannot accurately estimate the parameters of Intertemporal Allocation using GMM on Euler equations, whether they be exact or approximate. Our reading of this literature and our own results is that this is a small sample (strictly, short panel) problem. The alternative seems to be to move to full structural modelling. In the current state of the art this is cumbersome, fragile and unable to deal with significant heterogeneity. We present a novel structural estimation procedure that is based on simulating expectation errors; we refer to it as Simulated Residual Estimation (SRE). We develop variants of the basic procedure that allow us to account for measurement error in consumption, the 'news' in interest rate realisations and for heterogeneity in discount factors. An investigation of the small sample properties of the SRE estimator indicates that it dominates GMM estimation of both exact and approximate Euler equations in the case when we have short panels and noisy consumption data. An empirical application to two panels drawn from the PSID are presented. The results are very encouraging. We find that we can estimate the parameters of Intertemporal Allocation much more precisely than with a conventional GMM on a log-linearised model. For example, we find that the 95% confidence interval for the EIS is [0.27, 0.70] for the more educated whereas the IGMM confidence intervals are [-0.38, 0.90] and [-3.78, 6.22] for the linearized and nonlinear models respectively. Moreover, the parameter estimates seem quite reasonable. For example, we find discount factors that are less than, but close to unity. We also find a higher discount factor for the more educated group. We find that the more educated have a higher CRRA which we interpret to indicate that the constant EIS assumption of the iso-elastic form is rejected. Finally, we present results for a model that allows for heterogeneity in the discount factor within education groups. We reject strongly the homogeneity assumption and find that discount rates vary significantly within groups.
Tapan Mitra - One of the best experts on this subject based on the ideXlab platform.
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Intertemporal Allocation models an example
2016Co-Authors: Prajit K Dutta, Tapan MitraAbstract:A standard model of Intertemporal Allocation (described by a technology set, and a welfare function defined on consumption) can be reduced to one described by a technology set, and a utility function defined on this set. We present an example to show that even when the welfare function is concave, monotone and continuous, the utility function can be discontinuous. We also provide sufficient conditions on the technology set and the welfare function under which the utility function is continuous. Our results indicate that the common practice of assuming continuity of the utility function is more restrictive than might be apparent.
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Characterization of the turnpike property of optimal paths in the aggregative model of Intertemporal Allocation
International Journal of Economic Theory, 2005Co-Authors: Tapan MitraAbstract:The present paper provides a complete characterization of the turnpike property of optimal paths in the (reduced form) aggregative model of Intertemporal Allocation. The characterization allows one to identify precisely the bifurcation point between globally stable and cyclical long-run optimal behavior. The complete characterization result is used to evaluate several sufficient conditions for global asymptotic stability of optimal paths that have been proposed in the published literature. It is also used to examine sufficient conditions for the emergence of competitive equilibrium cycles in two-sector models.
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Intertemporal Complementarity and Optimality: A Study of a Two-Dimensional Dynamical System
International Economic Review, 2005Co-Authors: Tapan Mitra, Kazuo NishimuraAbstract:The theory of optimal Intertemporal Allocation has been developed primarily for the case in which the objective function of the planner or representative agent can be written as \(U(c1, c2\ldots) \equiv {{{\sum}^\infty}_{t=1}} {{\delta}^{t-1}}w(c_{t})\) where c t represents consumption at date t, w the period felicity function, and \(\delta\,\,\epsilon\) (o,1) a discount factor, representing the time preference of the agent.
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A Characterization of the Turnpike Property of Optimal Paths in the Aggregative Model of Intertemporal Allocation
2002Co-Authors: Tapan MitraAbstract:The paper provides a complete characterization of the turnpike property of optimal paths in the (reduced form) aggregative model of Intertemporal Allocation. The characterization allows one to identify precisely the bifurcation point between globally stable and cyclical long-run optimal behavior. The complete characterization result is used to evaluate several sufficient conditions for global asymptotic stability of optimal paths that have been proposed in the literature. It is also used to examine sufficient conditions for the emergence of competitive equilibrium cycles in two-sector models.
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Periodic and chaotic programs of optimal Intertemporal Allocation in an aggregative model with wealth effects
Economic Theory, 1994Co-Authors: Mukul Majumdar, Tapan MitraAbstract:We examine a discrete-time aggregative model of discounted dynamic optimization where the felicity function depends on both consumption and capital stock. The need for studying such models has been stressed in the theory of optimal growth and also in the economics of natural resources. We identify conditions under which the optimal program is monotone. In our framework, the optimal program can exhibit cyclic behavior for all discount factors close to one. We also present an example to show that our model can exhibit optimal behavior which is chaotic in both topological and ergodic senses.
Pasquale Scaramozzino - One of the best experts on this subject based on the ideXlab platform.
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Social time preference
Journal of Population Economics, 2000Co-Authors: Giancarlo Marini, Pasquale ScaramozzinoAbstract:The observed practice of discounting the future should not be rationalised on the grounds of myopia or selfishness. A positive rate of pure time preference is necessary to ensure that heterogeneous generations are treated in an egalitarian fashion. A zero social discount rate would yield Intertemporal Allocations which are biased against the current generations. Endogenous productivity growth requires that the social discount rate be set above the subjective rate of pure time preference. Positive social time preference, far from discriminating against future generations, is essential for a fairer Intertemporal Allocation of resources.
Junji Kageyama - One of the best experts on this subject based on the ideXlab platform.
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The Intertemporal Allocation of consumption, time preference, and life-history strategies
Journal of Bioeconomics, 2011Co-Authors: Junji KageyamaAbstract:This paper studies the Intertemporal Allocation of consumption and time preference in both biological and economic framework. By incorporating intergenerational transfers to examine human life-history strategies, this study demonstrates that time discounting and mortality mirror the age-variation in the value of survival, which in turn depends on future reproduction and productive surplus. Consistent with empirical findings, the results suggest that our biologically endowed rate of time preference is positive, and is lowest in early adulthood, but increases thereafter. The results also offers a biological explanation for Intertemporal loss aversion, indicating that time preference is higher when exchange transactions involve a reduction in current consumption than when they involve an increase in current consumption. In a broader perspective, this paper looks into the biological foundation of preferences and motivation. Establishing the foundation of preferences with biological models and incorporating the results into economic models enrich the understanding of our decision-making mechanism and behavior.
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On the Intertemporal Allocation of consumption, mortality and life-history strategies
2009Co-Authors: Junji KageyamaAbstract:This paper studies the bio-evolutionary origin of time preference. By examining human life-history strategies, it demonstrates that time discounting and mortality reflect the age-variation in the value of survival, which in turn depends on future reproduction and production. Consistent with empirical findings, it also suggests that our biologically endowed time preference is positive, reaches its lowest at around age twenty and increases thereafter, and is higher when exchange transactions involve a reduction in present consumption than when they involve an increase in present consumption.
Orazio Attanasio - One of the best experts on this subject based on the ideXlab platform.
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consumption and saving models of Intertemporal Allocation and their implications for public policy
Journal of Economic Literature, 2010Co-Authors: Orazio Attanasio, Guglielmo WeberAbstract:This paper provides a critical survey of the large literature on the life cycle model of consumption, both from an empirical and a theoretical point of view. It discusses several approaches that have been taken in the literature to bring the model to the data, their empirical successes, and their failures. Finally, the paper reviews a number of changes to the standard life cycle model that could help solve the remaining empirical puzzles.
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consumption and saving models of Intertemporal Allocation and their implications for public policy
National Bureau of Economic Research, 2010Co-Authors: Orazio Attanasio, Guglielmo WeberAbstract:This paper provides a critical survey of the large literature on the life cycle model of consumption, both from an empirical and a theoretical point of view. It discusses several approaches that have been taken in the literature to bring the model to the data, their empirical successes and failures. Finally, the paper reviews a number of changes to the standard life cycle model that could help solve the remaining empirical puzzles.
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The Intertemporal Allocation of consumption: theory and evidence
Carnegie-Rochester Conference Series on Public Policy, 1995Co-Authors: Orazio AttanasioAbstract:Abstract Liquidity constraints and, more generally, inperfections in credit markets, can be extremely important for the Intertemporal Allocation of consumption and have received a substantial amount of attention in the theoretical and empirical literature on consumption. In the first part of the paper I review the reasons why liquidity constraints are important. Unfortunately, for several reasons, it is not easy to test for the presence of liquidity constraints. Aggregation issues preclude the use of aggregate time series data for such a purpose. Test based on micro data, however, are complicated by serious identification problems. If a simple equilibrium model does not fit some data set, one can change the assumptions about the opportunity set available to the economic agents or the specification of their preferences. For instance, empirical evidence that detects excess sensitivity of consumption to income could be explained by liquidity constraints or by nonseparability between consumption and leisure. However, the available evidence shows that it is possible to find flexible specifications of preferences that fit consumption movements at businesscycle frequencies. I also present simulation evidence that shows that from many plausible parameter configurations, liquidity constraints are likely to be relevant only for a small proportion of economic agents. In the last part of the paper I present new evidence on the relevance of liquidity constraints based on debt-holding data. The data indicate that the demand for debt of individuals is more likely to be liquidity constrained and is less elastic to changes in the interest rate.
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The Intertemporal Allocation of Consumption: Theory and Evidence
1994Co-Authors: Orazio AttanasioAbstract:Liquidity constraints and, more generally, imperfections in credit markets, can be extremely important for the Intertemporal Allocation of consumption and have received a substantial amount of attention in the theoretical and empirical literature on consumption. In the first part of the paper I review the reasons why liquidity constraints are important. Unfortunately, for several reasons, it is not easy to test for the presence of liquidity constraints. Aggregation issues preclude the use of aggregate time series data for such a purpose. Tests based on micro data, however, are complicated by some serious identification problems. If a simple equilibrium model does not fit some data set, one can change the assumptions about the opportunity set available to the economic agents or the specification of their preferences. For instance, empirical evidence that detects excess sensitivity of consumption to income could be explained by liquidity constraints or by non separability between consumption and leisure. However, the available evidence shows that it is possible to find flexible specifications of preferences that fit consumption movements at business cycle frequencies. I also present some simulation evidence that shows that for many plausible parameter configurations, liquidity constraints are likely to be relevant only for a few economic agents. In the last part of the paper I present some new evidence on the relevance of liquidity constraints based on debt holding data. The data indicate that the demand for debt of individuals more likely to be liquidity constrained is less elastic to changes in the interest rate.
