Notes, Comments, and Letters to the EditorIndeterminacy with Non-separable Utility☆
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2021, Journal of Economic Dynamics and ControlIdentifying key aspects of household behavior in a representative agent framework
2021, Economic ModellingCitation Excerpt :In particular, multiplicative separable preferences, proposed by King et al. (1988) and known as KPR preferences (see e.g., Stockman and Tesar, 1995; Benigno and Thoenissen, 2008), imply the existence of non-trivial constraints on the preference parameters that are necessary to ensure positive non-increasing marginal utilities. The assumption of additive separable preferences between consumption and leisure also appears quite restrictive since it implies that the inter-temporal elasticity of substitution must equal one (see e.g., Bennet and Farmer, 2000; Domeij and Floden, 2006). Blundell and Walker (1982) tested the restrictions implied by the separability assumption, i.e. that all goods are normal and leisure is a substitute for all commodities, which is a rather unattractive assumption since some consumption activities may be complementary to leisure.
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We thank Michael Woodford, Jess Benhabib, Jang-Ting Guo, Sharon Harrison, Stephanie Schmidt-Grohé, Amartya Lahiri, Martin Uribe, Mark Weder, and two anonymous referees of this journal, all of whom have made valuable suggestions that have contributed to the final version of the paper. Any remaining errors are ours.
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The views expressed are those of the author and not necessarily those of the Federal Deposit Insurance Corporation.
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Farmer's research was supported by NSF Grant SBR 9515036 and by a grant from the Academic Senate of the University of California at Los Angeles.