A linear allocation of spending-power system : consumer demand and portfolio model

In the applied literature the household's consumption and portfolio decisions have tended to be viewed separately. This thesis is an initial attempt to remedy this. The household's demand for both commodities and assets, at a reasonably low level of aggregation, is integrated by using a tightly specified utility maximizing model. Utility is a function of both the flow of commodities consumed and the stock of assets held. The consumer demand literature is used as a starting point. The solution to the household's maximum problem generates an allocation system, which is a complete set of demand equations for all commodities and all assets. Two allocation systems are estimated using quarterly Australian data. Wealth, price and interest rate elasticities of demand for each commodity and each asset are reported.