This paper addresses two topics. First, it nests the consumption and static capital asset pricing model in a unified framework. Second, it tests for market efficiency. The first test is based on the idea that different models price risk on the basis of the covariance with different benchmark portfolios. The test of market efficiency is based on the idea that excess returns should be predictable only if risk and, therefore, second moments are predictable. The empirical results show that the static capital asset pricing model performs better than the consumption capital asset pricing model and that the former model accounts for the effects of dividend yields on expected returns.

The use of microeconomic data has become extremely widespread in applied economics. Household and firm level data are now routinely used not only in labour and industrial organization, but also in macroeconomics. The use that is made of the data is extremely varied, ranging from simple comparison of means in the evaluation literature based on Randomized Control Trials, to the matching of some data moments to calibrate the structural parameters of complex models of individual behaviour to the structural estimation of dynamic optimization models. At the same time, partly as consequences of technology advances, many more data sets are available. And much more detailed and high quality data are being collected. From a methodological point of view, important advances have been made in the techniques aimed at the elicitation in surveys of information about a variety of factors that constitute important inputs in the empirical analysis of economic behaviour. A good example, for instance, is the collection of information on household financial and non financial wealth, which was thought to be a very difficult if not impossible variable to measure accurately in a household survey and, instead, is now collected routinely and satisfactorily in many surveys, thanks to the development and standardization of new

This paper contributes to the debate regarding trends in consumption inequality in the United States. We present a new measure of consumption inequality based on the redesigned 1999-2011 PSID. We impute consumption to the families observed before 1999 using the more comprehensive consumption data available from 1999 onward. One advantage of this procedure is in sample verification of the quality of the imputation procedure; another is that it yields a long time series (1967-2010). Consumption inequality was stable in the 1970s, as was income inequality. It increased significantly after 1980. The Great Recession was associated with a decline in consumption inequality.

Stock-Market Participation, Intertemporal Substitution, and Risk-Aversion by Annette Vissing-Jørgensen and Orazio P. Attanasio. Published in volume 93, issue 2, pages 383-391 of American Economic Review, May 2003

We study testable implications for the dynamics of consumption and income of models in which first-best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment, agents typically achieve more insurance than that obtained under self-insurance with a single asset. Consumption allocations exhibit “excess smoothness,” as found and defined by Campbell and Deaton (1989). We argue that excess smoothness, in this context, is equivalent to a violation of the intertemporal budget constraint considered in a Bewley economy (with a single asset). We also show parameterizations of our model in which we can obtain a closed-form solution for the efficient insurance contract and where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. We present tests of excess smoothness, applied to U.K. microdata and constructed using techniques proposed by Hansen, Roberds, and Sargent (1991) to test the intertemporal budget constraint. Our theoretical model leads us to interpret them as tests of the market structure faced by economic agents. We also construct a test based on the dynamics of the cross-sectional variances of consumption and income that is, in a precise sense, complementary to that based on Hansen, Roberds, and Sargent (1991) and that allows us to estimate the same structural parameter. The results we report are consistent with the implications of the model and are internally coherent.

In this paper we present empirical evidence on aggregation problems with Euler equations for consumption. Our main results are: estimates of the elasticity of intertemporal substitution for consumption are consistently lower for aggregate data than for average cohort data and the theoretical model is statistically rejected on aggregate data, not rejected on average cohort data. In trying to explain these differences we find that a major role is played by the non-linearity of the estimable equation and by omitted demographic factors (normally unobservable on aggregate data). However, even when these sources of aggregation bias are corrected for, the estimates of the elasticity of intertemporal substitution obtained from aggregate data remain lower than those obtained from average cohort data, and excess sensitivity tests reject the implications of the model. This can be explained as the result of imposing identical coefficients to cohorts who differ in preferences and/or opportunity sets.

Using three major U.K. pension reforms as natural experiments we investigate the relationship between pension saving and discretionary private savings. Unlike most differences-in-differences approaches which rely on average differences between control and treatment group, we use economic theory to model the response of each individual household. The empirical analysis, based on the Family Expenditure Survey, uses both time-series and cross-sectional variation to identify the behavioral response. The earnings-related tier of the pension scheme is found to have a negative impact on private savings with relatively high substitution elasticities; the impact of the flat-rate tier is not significantly different from zero.

We analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare. Our empirical work draws on the best available cross-sectional data sets to construct synthetic panel data on U.S. consumption, labor supply, and wages during the 1980s. We find that low-frequency movements in the cohort-education structure of pretax hourly wages among men drove large changes in the distribution of household consumption. The results constitute a spectacular failure of between-group consumption insurance, a failure not explained by existing theories of informationally constrained optimal consumption behavior. A welfare analysis indicates that the cost of between-group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude.

In this paper, the authors show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in U.S. household-level data. They propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations. The authors estimate preference parameters using the only U.S. micro data set with complete consumption information. They show that previous rejections can be explained by the simplifying assumptions made in previous studies. The authors also show that results obtained using good consumption or aggregate data can be misleading.

This paper studies the life-cycle labor supply of three cohorts of American women, born in the 1930s, 1940s, and 1950s. We focus on the increase in labor supply of mothers between the 1940s and 1950s cohorts. We construct a life-cycle model of female participation and savings, and calibrate the model to match the behavior of the middle cohort. We investigate which changes in the determinants of labor supply account for the increases in participation early in the life-cycle observed for the youngest cohort. A combination of a reduction in the cost of children alongside a reduction in the wage-gender gap is needed.