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Essays on household preference and dynamic decisions

University of British Columbia

This study examines the identification of household preference from a micro-panel dataset and the effects of the stock market collapse and the Zero-Lower Bound monetary policy on household consumption decisions during the 2007-2008 global financial crisis (GFC). In the first chapter, I propose a procedure for estimating the household utility function from a micro-panel dataset using the intertemporal Euler equation. Here, I demonstrate that the household utility function can be estimated accurately from a micro-panel dataset using the intertemporal Euler equation by taking into account the differences in the portfolio compositions of household savings across households. In addition, I construct a new household dynamic model in which the household stock-holding behavior is modeled by explicitly taking into account the hidden stock market participation cost pointed out in recent empirical studies as a potential explanation for the low stock market participation rate among households in the United States. In the second chapter, I explore the effects of the stock market collapse and the Zero-Lower Bound monetary policy on household consumption decisions during the GFC. The huge drop in the stock market return and the decline in the risk-free rate due to the Zero-Lower Bound monetary policy triggered a large percentage decrease in the consumption of wealthy households in this period in the United States. Meanwhile, the consumption of households at the bottom part of the wealth distribution, which generally do not participate in the stock market, increased slightly in percentage due to the decline in the risk-free rate during the GFC in the United States. As a result, the stock market collapse and the Zero-Lower Bound monetary policy generated a substantial decrease in consumption inequality among households. In the third chapter, I estimate the heterogeneity in household preference by employing a combination of the extremum and nonparametric estimation methods and find significant heterogeneity in the preferences across households in the United States and Italy. This estimated heterogeneity in household preference can be used to explain the observed wealth distribution and the differences in career and investment choices across households in future research.

Text

2020-12-16

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/76835

Economics

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/