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The Representative Agent Hypothesis: An Empirical Test

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This paper empirically tests the validity of using only mean income as a representative variable for the whole population in the aggregate consumption relation and of assuming time-invariance of the coefficients in this relation, as done in macromodels. We use a statistical distributional approach of aggregation to test these properties on the UK-Family Expenditure Survey [1974-1993]. It is observed that the time-invariance assumption is rejected in most cases. A bootstrap test also suggests that in addition to mean income, the dispersion of income matters significantly for the commodity group services in several years and for clothing & footwear and total nondurable in some years, thus invalidating the representative agent hypothesis.

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Manisha Chakrabarty, Anke Schmalenbach

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Adapt according to the presented license agreement and reference the original author.