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Non-Linear Modelling of Household Consumption: an Examination of a Closed-Form Life-Cycle Model

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  • Rebecca Riley
  • Dr Martin Weale

Abstract

We use successive datasets from the U.K. Family Expenditure Survey to estimate a closed form consumption function for households facing uncertain future income. The closed form is derived from a model of absolute risk aversion modified to reflect differences in consumers' circumstances (quasi-relative risk aversion). Proper adjustment is made for demographic effects. Plausible estimates for the intertemporal substitution parameter are found. However an encompassing test shows that a naive Keynesian model has some residual explanatory power.

Suggested Citation

  • Rebecca Riley & Dr Martin Weale, 2003. "Non-Linear Modelling of Household Consumption: an Examination of a Closed-Form Life-Cycle Model," National Institute of Economic and Social Research (NIESR) Discussion Papers 206, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:206
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    Cited by:

    1. Viola Angelini & Peter Simmons, "undated". "Housing Debt and Consumption," Discussion Papers 11/20, Department of Economics, University of York.

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