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arXiv · 2311.06740

Aggregation and Closed-Form Results for Nonhomothetic CES Preferences

Clement E. Bohr·Martí Mestieri·Emre Enes Yavuz
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Abstract

We provide four novel results for nonhomothetic Constant Elasticity of Substitution preferences (Hanoch, 1975). First, we derive a closed-form representation of the expenditure function of nonhomothetic CES under relatively flexible distributional assumptions of demand and price distribution parameters. Second, we characterize aggregate demand from heterogeneous households in closed-form, assuming that household total expenditures follow an empirically plausible distribution. Third, we leverage these results to study the Euler equation arising from standard intertemporal consumption-saving problems featuring within-period nonhomothetic CES preferences. Finally, we show that nonhomothetic CES expenditure shares arise as the solution of a discrete-choice logit problem.

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Clement E. Bohr, Martí Mestieri, Emre Enes Yavuz. 2023-11-12. Aggregation and Closed-Form Results for Nonhomothetic CES Preferences. https://arxiv.org/abs/2311.06740

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