The Double Power Law in Consumption and Implications for Testing Euler Equations

• 成果类型: Article
• 署名作者: Toda, Alexis Akira; Walsh, Kieran
• 署名单位: University of California System; University of California San Diego; University of Virginia
• 刊物名称: JOURNAL OF POLITICAL ECONOMY
• ISSN/ISSBN: 0022-3808
• DOI: 10.1086/682729
• 发表日期: 2015
• 页码: 1177-1200
• 关键词: pareto; PARTICIPATION; RISK

摘要

We provide evidence suggesting that the cross-sectional distributions of US consumption and its growth rate obey the power law in both the upper and lower tails, with exponents approximately equal to four. Consequently, high-order moments are unlikely to exist, and the generalized method of moments estimation of Euler equations that employs cross-sectional moments may be inconsistent. Through bootstrap studies, we find that the power law appears to generate spurious non-rejection of heterogeneous-agent asset pricing models in explaining the equity premium. Dividing households into age groups, we propose an estimation approach that appears less susceptible to fat tail issues.