Aggregation under structural stability: the change in consumption of a heterogeneous population

Abstract

It is shown how one can effectively use cross-section data in modelling the change over time in aggregate consumption expenditure of a heterogeneous population. The starting point of our aggregation analysis is a dynamic behavioral relation on the household level. Based on certain hypotheses on the evolution of the distribution of income and household characteristics we derive explanatory variables for the change in aggregate consumption expenditure which are quite different from the explanatory variables on the household level. It is shown that U.K. Family Expenditure Data support our theoretical model for aggregate consumption.