{"title":"Aggregation and Closed-Form Results for Nonhomothetic CES Preferences","authors":"Clement E. Bohr, Martí Mestieri, Emre Enes Yavuz","doi":"arxiv-2311.06740","DOIUrl":null,"url":null,"abstract":"We provide four novel results for nonhomothetic Constant Elasticity of\nSubstitution preferences (Hanoch, 1975). First, we derive a closed-form\nrepresentation of the expenditure function of nonhomothetic CES under\nrelatively flexible distributional assumptions of demand and price distribution\nparameters. Second, we characterize aggregate demand from heterogeneous\nhouseholds in closed-form, assuming that household total expenditures follow an\nempirically plausible distribution. Third, we leverage these results to study\nthe Euler equation arising from standard intertemporal consumption-saving\nproblems featuring within-period nonhomothetic CES preferences. Finally, we\nshow that nonhomothetic CES expenditure shares arise as the solution of a\ndiscrete-choice logit problem.","PeriodicalId":501487,"journal":{"name":"arXiv - QuantFin - Economics","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2023-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Economics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2311.06740","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
We provide four novel results for nonhomothetic Constant Elasticity of
Substitution preferences (Hanoch, 1975). First, we derive a closed-form
representation of the expenditure function of nonhomothetic CES under
relatively flexible distributional assumptions of demand and price distribution
parameters. Second, we characterize aggregate demand from heterogeneous
households in closed-form, assuming that household total expenditures follow an
empirically plausible distribution. Third, we leverage these results to study
the Euler equation arising from standard intertemporal consumption-saving
problems featuring within-period nonhomothetic CES preferences. Finally, we
show that nonhomothetic CES expenditure shares arise as the solution of a
discrete-choice logit problem.