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The Interaction Between Time-Nonseparable Preferences and Time Aggregation

John Heaton
Econometrica
Vol. 61, No. 2 (Mar., 1993), pp. 353-385
Published by: Econometric Society
DOI: 10.2307/2951555
Stable URL: http://www.jstor.org/stable/2951555
Page Count: 33
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The Interaction Between Time-Nonseparable Preferences and Time Aggregation
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Abstract

This paper specifies and empirically analyzes a continuous-time, linear-quadratic, representative consumer model with time-nonseparable preferences of several forms. Within this framework I show how time aggregation and time nonseparabilities in preferences over consumption streams can interact. The behavior of both seasonally adjusted and unadjusted consumption data is consistent with time-nonseparable preferences if consumption goods are durable and if individuals develop habit over the flow of services from the good. The data do not support a version of the model that ignores time nonseparabilities in preferences and focuses solely upon time aggregation.

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