MODELING MOVEMENTS IN INDIVIDUAL CONSUMPTION: A TIME-SERIES ANALYSIS OF GROUPED DATA

We characterize the time series properties of group-level consumption, income and interest rates using micro data. We relate the coefficients of MA representations to structural parameters of theoretical models of consumption behaviour. Using long time series of cross sections to construct synthetic panel data for the UK, we find that for high-educated individuals the Euler equation restrictions are not rejected, the elasticity of intertemporal substitution is higher than one and there is evidence of “excess smoothness” of consumption. Low-educated individuals, conversely, exhibit excess sensitivity of consumption to past income and elasticity of intertemporal substitution not statistically different from zero.