Consumer Demand, Consumption, and Asset Pricing: An Integrated Analysis

This paper integrates seemingly disjoint studies on consumer behavior in micro and macro analyses via the intertemporal two-stage budgeting procedure with durable goods and liquidity constraints. The model accounts for the influences of nondurables consumption, commodity prices, and durables stock on commodity demands as well as on risk aversion and asset returns. The demand functions for six nondurable goods are jointly estimated with the Euler equations for bonds, shares, and durables goods, with allowance for liquidity constraints. The integrated model proves useful with new findings for risk aversion and, particularly, an extended consumption CAPM with multiple goods and liquidity constraints.