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Revista Brasileira de Economia

Print version ISSN 0034-7140On-line version ISSN 1806-9134

Abstract

COSTA, Marcos Gesteira  and  CARRASCO-GUTIERREZ, Carlos Enrique. Testing the Optimality of Consumption Decisions of the Representative Household: Evidence from Brazil. Rev. Bras. Econ. [online]. 2015, vol.69, n.3, pp.373-387. ISSN 0034-7140.  http://dx.doi.org/10.5935/0034-7140.20150017.

This paper investigates whether there is a fraction of consumers that do not behave as fully forward-looking optimal consumers in the Brazilian economy. The generalized method of moments technique was applied to nonlinear Euler equations of the consumption-based capital assets model contemplating utility functions with time separability and non-separability. The results show that when the household utility function was modeled as constant relative risk aversion, external habits and Kreps–Porteus, estimates of the fraction of rule-of-thumb households was, respectively, 89%, 78% and 22%. According to this, a portion of disposable income goes to households who consume their current incomes in violation of the permanent income hypothesis.

Keywords : CCAPM; Rule of Thumb; Aggregate Consumption; Permanent Income Hypothesis; Euler Equations.

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