Structural Estimation of Dynamic Consumption Model

Specialeforsvar ved Rune Schrøder Motzkus

Titel: Structural Estimation of Dynamic Consumption Model

Abstract: This thesis presents a numerical dynamic programming set up, in order to solve a dynamic expected discounted utility problem for a representative household, with a special focus on energy consumption. The preferences of the household, represented by a constant elasticity of substitution (CES) embedded in a constant relative risk aversion (CRRA) utility function, is estimated using the simulated method of moments (SME). The parameters to be estimated are the intra- and intertemporal elasticities of substitution. These estimates are applied, to assess the impact of an exogenous tax rate on energy consumption on both the expected discounted utility and optimal consumption behaviour. Simulations from the estimated model, where the estimation procedure is carried out on both energy consumption data with and without taxes, show a average relative loss of utility on .22 percent. Assessment of the development of the solution algorithm, with estimated preferences with taxes included in the transition equation, shows that the optimal response to taxes on energy consumption, is to substitute with savings.

Vejleder: Thomas Høgholm Jørgensen
Censor: Nina Detlefsen