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Has anybody seen, any textbook recommendation that refers to the proper proxy for consumption. I am trying to estimate a two factor consumption CAPM, namely we I add a second factor apart from consumtion in the model. But the paper that I read, it only refers to non-durable goods and services as a proxy. I am wondering if there is some other type of proxy and any recommendation would be very helpful.

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I would recommend you read Kroencke (2017). That paper dismantles the problem in a lot of prior (flawed) consumption-based asset pricing research as well as explaining some findings for what were seemingly better proxies. It is a fantastic bit of work and likely not yet in some of the texts you might encounter.

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