conclusions are solely those of the authors and should not be considered as representing

In this paper we analyze the importance of intertemporal non-separabilities for consumption decisions using household data. We follow the test suggested by Meghir and Weber (1996), so we exploit the variability of the within-period marginal rate of substitution (MRS) between commodities. We also check for the presence of liquidity constraints by comparing the results obtained from the MRS to those of the Euler equations. For that purpose, we use a Spanish data set in which households are observed up to eight consecutive quarters. This length of the temporal dimension is crucial, since it allows both to account for the dynamics of consumption in the preferences as well as to control for time invariant unobserved heterogeneity across households. Our results con…rm the importance of accounting for …xed e¤ects when analyzing intertemporal consumption decisions allowing for time non-separabilities. Once we control for …xed e¤ects and use the adequate set of instruments we do not …nd evidence of misspeci…cation and the results yield supporting evidence of habit formation. Keywords:Consumption, panel data, unobserved heterogeneity, habits, durability.

Equity mutual fund loads have fallen, while stock ownership rates and equity mutual fund use have risen, plausibly boosting the stock wealth elasticity of U.S. consumption. Because of limited wealth and diversification needs, load declines likely spurred middle-income families to invest in equity, consistent with cross-section data and the calibration model of Heaton and Lucas (2000). In load-modified models, the stock wealth elasticity is declining in loads and more stable long-run wealth and income coefficients are obtained. These modified models imply that although the wealth elasticity has risen, conventional models overestimate the wealth elasticity and underestimate the income elasticity of consumption.

Seminar at the Wharton School for comments on earlier drafts of this paper. The usual disclaimer applies. This paper uses the strategic asset allocation model developed by Campbell et al. (1999) to examine the tradeoffs between defined benefit and defined contribution pension plans, extending results by Bodie et al. (1988). The effects of varying risk aversion, varying initial income and financial wealth and varying wage processes (that may be correlated with returns on the risky asset) are examined. 4 th Annual Retirement Research Consortium Washington, DC May 2002 i-1D. McCarthy Defined Benefit Pension Plans: A Stochastic Dynamic Programming Approach 1.