Is Consumption Growth Consistent with Intertemporal Optimization? Evidence for the Consumer Expenditure Survey

In this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in U.S. household-level data. We propose a flexible specification of preferences that allows multi-ple commodities and yields empirically tractable equations. We esti-mate preference parameters using the only U.S. micro data set with complete consumption information. We show that previous rejec-tions can be explained by the simplifying assumptions made in previ-ous studies. We also show that results obtained using good consump-tion or aggregate data can be misleading. I