Working Paper No. 971

Revealed Preference Tests of Utility Maximization and Weak Separability of Consumption, Leisure and Money with Incomplete Adjustment

Swofford and Whitney (1987) investigated the validity of two types of assumptions that underlie the representative agent models of modern macroeconomics and monetary economics. These assumptions are utility maximization and weak or functional separability that is required for an economic aggregate to exist.

To reinvestigate the structure of the representative consumer’s preferences we develop a mixed integer programming revealed preference test with incomplete adjustment. We find that both a narrow official US monetary aggregate, M1, and a broad collection of assets are weakly separable. We further find that a modern analog of money as suggested by Friedman and Schwartz (1963) is also weakly separable. We also find that consumption goods and leisure are separable from all monetary goods. We find no evidence that official US M2 or MZERO are consistent with utility maximization and weak separability. That is, the assets in these measures do not meet the requirement for forming an aggregate over goods that is consistent with economic theory.

Finally, we find that three broad categories of consumption goods, durables, nondurables and services, do not meet the weak separability conditions required for forming a consumption aggregate. However, a consumption aggregate of nondurables and services is weakly separable.

Per Hjertstrand


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

Sick of Inequality.jpg

In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


Seminars organized by IFN


To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

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