Life-cycle behaviour of US households. A nonlinear GMM estimation on pseudopanel data

Michel Beine*, Francis Bismans, Fréderic Docquier, Sébastien Laurent

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

Since Auerbach and Kotlikoff's [(1987). Dynamic fiscal policy. Cambridge: Cambridge University Press] studies, the overlapping generations (OLG) model has become a useful modelling tool of policy evaluation. Given the lack of data on life-cycle behaviour, the parameterisation of such models is cumbersome. The purpose of this paper is to offer an econometrics-based method for estimating the utility function parameters. These parameters determine both the short-run responses to policy shocks and the speed of convergence toward the long-run solution. We use the US Consumer Expenditure Survey data and create a pseudopanel data bank with representative agents. Our estimators are obtained by compiling generalised method of moments (GMM) yearly values following the minimum distance estimation (MDE) of Chamberlain [(1984). Panel data. In Z. Griliches & M. D. Intriligator (Eds.), Handbook of econometrics II (pp. 1247-1318). Amsterdam: North-Holland]. It is shown that leisure is not an explicit argument of the utility function, the intertemporal elasticity of substitution is rather low, and aggregated purchases of goods present some durability.

Original languageEnglish
Pages (from-to)713-729
Number of pages17
JournalJournal of Policy Modeling
Volume23
Issue number7
DOIs
Publication statusPublished - 2001

Keywords

  • GMM estimation
  • OLG model
  • Pseudopanel

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