A MICROECONOMETRIC MODEL OF INTERTEMPORAL SUBSTITUTION AND CONSUMER DEMAND.

In this paper we investigate the relationship between within-period preferences and the degree of intertemporal substitution. We first present a theoretical discussion which argues that the form of within-period preferences and the way these differ across the consumers may have important consequences for the formulation and specification of intertemporal models. We then apply this methodology to a detailed study of disaggregate household expenditure across 15 years. Our objective is to assess the degree of intertemporal substitution across different household types avoiding aggregation bias and accounting for nonadditive within-period preferences and nonlinearity in Engel curves.