Consumer aggregation in dynamic general equlibrium models with CES utility functions

Exact aggregation of heterogeneous consumers into one representative consumer with the same total consumption is known to be possible only under fairly restrictive assumptions on the structure of the general equilibrium model. In the dynamic model with the Cobb–Douglas utility and production functions, we obtain exact formulas for the preference parameters of the aggregate utility. For models with arbitrary constant elasticity of substitution utility (CES) functions, we extend the conventional approach of calibrating the CES utility to the benchmark data by taking into account time-variations in consumers' preference parameters.