2019

Revealed Preference Tests of Indirect and Homothetic Weak Separability of Financial Assets, Consumption and Leisure

Reprint No. 2019:34

Author(s): Per Hjertstrand and James SwoffordYear: 2019 Title: Journal of Financial Stability Volume (No.): 42 (June) Pages: 108–114
Online article (restrictions may apply)


Hjertstrand et al. (2016) recently tested weak separability of the direct utility function using U.S. data on consumption goods, leisure, financial and monetary assets. This paper investigates different forms of weak separability. While weak separability of the direct utility function provides the best fit, by allowing for small errors in the data we find some evidence that financial and monetary assets can be rationalized by a weakly separable indirect utility function. Further we find that M1, a modern analog of money defined by Friedman and Schwartz (1963) and narrow and broader real sector aggregates can be rationalized by indirect weak separability. We also find that M1 and real sector aggregates can be rationalized by homothetic weak separability.


Reference:
Hjertstrand, Per and James Swofford (2019), "Revealed Preference Tests of Indirect and Homothetic Weak Separability of Financial Assets, Consumption and Leisure". Journal of Financial Stability 42(June), 108–114.

Per Hjertstrand

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Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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