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The Interaction Between Time-Nonseparable Preferences and Time Aggregation
John Heaton
Abstract
This paper specifies and empirically analyzes a continuous-time, linear-quadratic, representative consumer model with time-nonseparable preferences of several forms. Within this framework I show how time aggregation and time nonseparabilities in preferences over consumption streams can interact. The behavior of both seasonally adjusted and unadjusted consumption data is consistent with time-nonseparable preferences if consumption goods are durable and if individuals develop habit over the flow of services from the good. The data do not support a version of the model that ignores time nonseparabilities in preferences and focuses solely upon time aggregation.
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