This thesis deals with some analytical questions that arise in the modern theory of con-sumption based on the intertemporal utility maximization model, also known as the Euler equation approach. It thus builds on the theoretical and empirical literature which has stemmed from the seminal contribution by Hall (1978), who extended the basic life cycle – permanent income model of consumption to the case of uncertainty. In reviewing this literature and the theoretical developments and extensions that the original model has undergone due to the need of accounting for the puzzling empirical evidence, the thesis aims at highlighting the crucial role that the preference parameters play in the specifica-tion of the theoretical content of the model and its predictions, and in the definition of the policy implications that may be drawn from it. Crucial as the role of preference parameters may be both in theory and practice, our analysis reveals, also by making use of some simulation exercises, the substantial inability of the Euler equation approach to give definite content to such parameters, due to the heavy dependence of the results of parameter estimation on the specification of the utility function. The first paper offers a survey of the literature which, following Hall (1978), has en-gaged in the task of testing the model against empirical evidence and proposing successive extensions and refinements of the original model ending up in the current enriched ver-sions of it. The paper draws on other surveys but focuses in particular on an overall as-sessment of the theoretical implications of the extensions which the literature has proposed. The second paper focuses on the literature directly aiming to estimate the pa-rameters characterizing preferences – offering in this respect a specific survey which seems to be lacking in the literature – and highlights the crucial role of the specification of the utility function in such estimates. Drawing on this result, the third paper proposes a number of original simulation exercises aimed at showing that the same time profile of consumption and saving may give rise to the estimation of rather different values of the crucial preference parameters depending on the particular utility function adopted.
|Titolo:||The choice of the functional form in the consumption Euler equation: a critical view|
|Data di discussione:||5-ott-2016|
|Appartiene alla tipologia:||07a Tesi di Dottorato|