The evolution of consumer preferences in Poland

ABSTRACT

This note investigates a change of consumer preferences in Poland in the period of 1996–2016. I use the Euler equation–generalized method of moments (GMM) to estimate the structural parameters of the aggregate consumption function to show that consumers in Poland significantly change their attitude to risk during the global financial crisis, when the estimate of the risk-aversion parameter becomes very high, while otherwise close to zero suggesting near risk neutrality. Also, the subjective trade-off between consumption today and tomorrow undergoes an evolution towards lower ‘impatience’. Over-identifying restrictions are tested and the null hypothesis of validity of instruments is not rejected. The stability over time of the estimated parameters is tested and rejected. The evolution of preferences is shown through recursive estimates of the deep parameters, too.

KEYWORDS:

• Consumer behaviour
• Euler equation
• generalized method of moments
• parameter instability
• recursive estimation
• subprime crisis

JEL CLASSIFICATION:

• E21

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ A similar excercise for the case of Argentina was conducted by (Ahumada and Garegnani, 2004).

² The same estimation was conducted using the real exchange rate with similar results.

³ This date has an important economic meaning for the households. After the accession to the EU, in 2004Q2 the prices of housing capital in Poland went up by about 60% in 2006–2007 what is regarded by many economists as a correction of value in the open market economy. This housing boom had huge impact on households’ wealth in Poland as almost all apartments belonged to the families occupying them and constituted a lion share of their capital.

⁴ Muellebauer and Lattimore (1995) discuss introduction of liquidity constraints to the intertemporal optimization problem in detail.

⁵ Labour Force Survey Data.