TY - JOUR
T1 - Consumer demand, consumption, and asset pricing
T2 - an integrated analysis with intertemporal two-stage budgeting
AU - Youn Kim, H.
AU - McLaren, Keith R.
AU - Gary Wong, K. K.
PY - 2021/3
Y1 - 2021/3
N2 - This paper integrates seemingly disjoint studies on consumer behavior in micro and macroanalyses via an intertemporal two-stage budgeting procedure with durable goods and liquidity constraints. The model specifies an indirect utility function as a function of nondurable consumption, commodity (nondurables) prices, and durables stock, and derives the demand functions for nondurable goods. A demand function for durable goods is derived in an adjustment cost framework. The consumption growth equation accounts for relative price effects with precautionary saving, durables stock, and liquidity constraints. The stochastic discount factor is approximated by a time-varying linear function of nondurable consumption growth, commodity price growth, durables stock growth, and disposable income growth. The demand functions for six nondurable goods and services are jointly estimated with the Euler equations for bonds, stocks, and durable goods with allowance for liquidity constraints, using US data. Estimation provides new findings for intertemporal consumption and a multifactor consumption-based capital asset pricing model.
AB - This paper integrates seemingly disjoint studies on consumer behavior in micro and macroanalyses via an intertemporal two-stage budgeting procedure with durable goods and liquidity constraints. The model specifies an indirect utility function as a function of nondurable consumption, commodity (nondurables) prices, and durables stock, and derives the demand functions for nondurable goods. A demand function for durable goods is derived in an adjustment cost framework. The consumption growth equation accounts for relative price effects with precautionary saving, durables stock, and liquidity constraints. The stochastic discount factor is approximated by a time-varying linear function of nondurable consumption growth, commodity price growth, durables stock growth, and disposable income growth. The demand functions for six nondurable goods and services are jointly estimated with the Euler equations for bonds, stocks, and durable goods with allowance for liquidity constraints, using US data. Estimation provides new findings for intertemporal consumption and a multifactor consumption-based capital asset pricing model.
KW - Consumption-Based CAPM
KW - Euler Equations
KW - Indirect Utility Function
KW - Intertemporal Substitution
KW - The Stochastic Discount Factor
UR - http://www.scopus.com/inward/record.url?scp=85069515474&partnerID=8YFLogxK
U2 - 10.1017/S1365100519000221
DO - 10.1017/S1365100519000221
M3 - Article
AN - SCOPUS:85069515474
VL - 25
SP - 379
EP - 425
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
SN - 1365-1005
IS - 2
ER -