GARP, SEPARABILITY, AND THE REPRESENTATIVE AGENT

We examine whether annual, quarterly, and monthly U.S. aggregate consumption data could have been generated by a utility-maximizing representative agent with intertemporally separable utility. The model appears inapplicable over the full time periods covered by the NIPA data, which are the sample periods often used in the literature. The model does appear applicable, however, over long subsamples. The data also are inconsistent with separability assumptions routinely made in the literature. In particular, the main categories of consumption (nondurables, services, and durables) are not mutually separable. We consider the implications of our results for inference about consumption based on the representative-agent model.

[1]  Stephen G Bronars,et al.  The Power of Nonparametric Tests of Preference Maximization [The Nonparametric Approach to Demand Analysis] , 1987 .

[2]  Hal R. Varian,et al.  Non-parametric analysis of optimizing behavior with measurement error , 1985 .

[3]  Dale W. Jorgenson,et al.  The Measurement of U.S. Real Capital Input, 1929-1967 , 1969 .

[4]  James A. Chalfant,et al.  The Changing Empirical Definition of Money: Some Estimates from a Model of the Demand for Money Substitutes , 1989, Journal of Political Economy.

[5]  D. Primont,et al.  Duality, Separability, and Functional Structure: Theory and Economic Applications , 1978 .

[6]  James L. Swofford,et al.  Nonparametric Tests of Utility Maximization and Weak Separability for Consumption, Leisure and Money , 1987 .

[7]  R. Hall.  Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence , 1978, Journal of Political Economy.

[8]  N. Kocherlakota,et al.  The Equity Premium: It’s Still a Puzzle , 1999 .

[9]  W. M. Gorman.  SEPARABLE UTILITY AND AGGREGATION , 1959 .

[10]  M. Darby.  The Permanent Income Theory of Consumption — A Restatement , 1974 .

[11]  James L. Swofford,et al.  A Comparison of Nonparametric Tests of Weak Separability for Annual and Quarterly Data on Consumption, Leisure, and Money , 1988 .

[12]  S. Afriat.  THE CONSTRUCTION OF UTILITY FUNCTIONS FROM EXPENDITURE DATA , 1967 .

[13]  D. Thornton,et al.  An extended series of divisia monetary aggregates , 1992 .

[14]  H. Varian.  The Nonparametric Approach to Demand Analysis , 1982 .

[15]  J. Alston,et al.  Accounting for Changes in Tastes , 1988, Journal of Political Economy.

[16]  J. Muellbauer,et al.  Economics and consumer behavior , 1980 .

[17]  William A. Barnett,et al.  A Monte Carlo Study of Tests of Blockwise Weak Separability , 1989 .

[18]  H. Varian.  Non-parametric Tests of Consumer Behaviour , 1983 .

[19]  P. Chattopadhyay,et al.  Value and Capital , 1982 .

[20]  J. Huston McCulloch,et al.  U.S. term structure data, 1947-1991 , 1993 .

[21]  James L. Swofford,et al.  A revealed preference test for weakly separable utility maximization with incomplete adjustment , 1994 .

[22]  David W. Wilcox.  The Construction of U.S. Consumption Data: Some Facts and Their Implications for Empirical Work , 1992 .

[23]  Marjorie Flavin,et al.  The Adjustment of Consumption to Changing Expectations About Future Income , 1981, Journal of Political Economy.

[24]  Martin Browning,et al.  A Nonparametric Test of the Life-Cycle Rational Expectations Hypothesis , 1989 .

[25]  John Y. Campbell,et al.  Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence , 1989, NBER Macroeconomics Annual.

[26]  A. Kirman.  Whom Or What Does the Representative Individual Represent , 1992 .

[27]  Larry G. Epstein,et al.  Non-parametric hypothesis testing procedures and applications to demand analysis , 1985 .

[28]  Walter Diewert,et al.  Afriat and Revealed Preference Theory , 1973 .

[29]  W. Diewert.  Intertemporal Consumer Theory and the Demand for Durables , 1974 .

[30]  Richard J McDonald,et al.  An Analysis of Substitution Bias in Measuring Inflation, 1959-85 , 1988 .

[31]  A. Hall,et al.  Are consumption-based intertemporal capital asset pricing models structural?☆ , 1990 .