O&wey ~7 Iv Working Paper Alfred P. Sloan School of Management the Interaction between Time-nonseparable Preferences and Time Aggregation the Interaction between Time-nonseparable Preferences and Time Aggregation & the Interaction between Time-nonseparable Preferences and Time Aggregation

In this paper I develop and empirically analyze a continuous time , linear-quadratic, representative consumer model in which the consumer has time-nonseparable preferences of several forms. Within this framework I show how time aggregation and time nonseparabilities in preferences over consumption streams can interact. I show that the behavior of both seasonally adjusted and unadjusted consumption data is consistent with a model of time-nonseparable preferences in which the consumption goods are durable and in which individuals develop habit over the flow of services from the good. The presence of time nonseparabilities in preferences is important because the data does not support a version of the model that focuses solely upon time aggregation and ignores time nonseparabilities in preferences by making preferences time additive. Many helpful comments and suggestions were made by Edward Allen, Toni Braun, John Cochrane, George Constantinides , Martin Eichenbaum, Ayman Hindy, Chi-fu Huang, Narayana Kocherlakota, Robert Lucas, Robin Lumsdaine, Masao Ogaki Chris Phelan, Paul Romer, Karl Snow, Grace Tsiang, Kei-Mu^Yi and and participants of workshops at Chicago, Carnegie-Mellon, Duke, Harvard, M.I.T. , Minnesota, Northwestern, Princeton, Queen's, Rochester, Stanford, Toronto, Western Ontario, Wharton and Yale. I would especially like to thank Lars Peter Hansen for his many suggestions and his constant encouragment. I gratefully acknowledge financial support from the Greentree Foundation, the National Science Foundation, the Sloan Foundation and the Social Science and Humanities Research Council of Canada. This paper is a revised version of my University of Chicago Ph.D. dissertation. Any errors are of course my own.