Cross Country Evidence on Consumption Persistence (original) (raw)
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Measuring Persistence on Consumption in Portugal
Journal of Applied Economic Sciences, 2009
The paper deals with the detection and measurement of the level of persistence on aggregate private consumption in Portugal, USA, European Union and EuroZone as well as on some categories of aggregate consumption in Portugal. By the use of a non-parametric methodology applied to monthly data (1992-2007) it is concluded that aggregate consumption in Europe (both European Union and Euro Zone) is more persistent than in the USA and in Portugal. In particular, the relatively lower degree of persistence shown by the consumption in Portugal can be beneficial for the effectiveness of the countercyclical fiscal and monetary policies that are currently being implemented to overcome the current economic crisis. Our results also suggest that consumption of durables is less persistent, also being more volatile. This result is important in the explanation of the severity of the current economic crisis in Portugal.
International Evidence on Sticky Consumption Growth
This paper estimates the degree of 'stickiness' in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness parameter of about 0.7 on average across countries. The sticky-consumption-growth model outperforms the random walk model of , and typically fits the data better than the popular Campbell and Mankiw (1989) model, though in a few countries the sticky-consumption-growth and Campbell-Mankiw models work about equally well.
Don't break the habit: structural stability tests of consumption models in the UK
RePEc: Research Papers in Economics, 2004
Using quarterly data over 35 years for the UK on asset returns and consumption expenditure, the traditional power utility consumption based capital asset pricing model (C-CAPM), the recursive preferences model proposed by Epstein and Zin (1991) and a habit formation specification model are estimated using GMM. We analyze the models at both the economy level and individual sector groupings. We find evidence supportive of the both habit formation specification and the traditional C-CAPM at the economy level. However, structural stability tests for both known and unknown change points, clearly reject parameter stability in the traditional C-CAPM. Parameter stability is not rejected for the habit formation specification.
Total expenditure elasticity of non-durable consumption of European households
2015
This document presents the results of an empirical analysis carried out in order to estimate total expenditure elasticities for the household consumption module of the FIDELIO model. The estimates are based on survey data for the following six European countries: Austria, France, Italy, Slovakia, Spain, and the UK. The analysis deals with twelve categories of non-durable consumption: four energy- and eight non-energy-related goods and services. Results appear to be in line with the comparable elasticity estimates of the existing literature. Socio-demographic controls related to both household characteristics and housing conditions offer interesting additional results that may be useful at a later stage of the analysis with the FIDELIO model.
Deep Habits, Price Rigidities and the Consumption Response to Government Spending
infoscience.epfl.ch
This paper inspects the 'deep'habits mechanism originally used by Ravn, Schmitt- to generate the positive comovement of public and private consumption observed in many VAR studies. In their set-up, the price-elasticity of demand is pro-cyclical and it is optimal for the …rm to lower the mark-up while expanding production after the …scal shock, raising the demand for labor and the real wage. Consequently, agents substitute consumption for leisure and overcome the negative wealth e¤ect of the …scal expansion. Here, we show that increasing price stickiness reduces the impact of the …scal shock on the real wage and hinders the rise of consumption. If the degree of price stickiness is high enough, consumption is crowded-out. This is in contrast to the role of price rigidities in the standard New Keynesian model where they weaken the crowding-out of consumption.
Consumption Invariant to Economic Downturn? Evidenceon the Propensity to Consume
International Journal of Trade, Economics and Finance, 2013
This paper analyzes the response of consumption spending in Malaysia to the changes in income with consideration of the recent economic downturn of 1997/1998 and 2008. Applying annual data over the period 1991-2010, the cointegration test and the error correction model were employed to measure the response. Marginal propensity to consume in the short run and the long run were estimated. The finding finds that despite extraordinary times, consumption spending is invariant to economic downturn. It rejects excessively volatile consumption behavior and supports a stable consumption pattern. The marginal propensity to consume 0.67 is consistent with some findings in the literature. Wealth is one of the significant determinants of consumption.
Consumption and Wealth: New Evidence from Italy
SSRN Electronic Journal
This paper estimates a consumption function for Italy. In addition to permanent income, housing wealth, the interest rate on household loans and an index of credit conditions, our model introduces household net worth split into liquid and illiquid assets. The consumption dynamics are examined by using financial accounts and real national accounts in a Vector Error Correction Model (VECM), estimated from 1975 to 2017. The results show that the marginal propensity to consume out of liquid financial assets-mainly deposits and bonds-is positive and statistically significant, and greater than that for illiquid assets (mainly unquoted shares and insurance and pension assets); we also find that housing wealth has a smaller and significant impact on consumption. As expected, permanent income accounts for a large fraction of consumption, while the effect of the interest rate is negative.
Macroeconomic Dynamics, 2012
This paper is dedicated to the memory of the great statistician Melvin J. Hinich, with whom we were in contact about this research prior to his untimely death from a tragic fall. We develop a neoclassical growth model with habit formation to exhibit an equilibrium nonlinear relationship between aggregate consumption growth and income growth. We first provide empirical evidence consistent with this relationship both for the United States and France, and we reject the hypothesis of a random walk for consumption. We then estimate this nonlinear relationship. We find for both countries robust evidence of persistence, nonlinearity, and cyclicity in the relationship between consumption and income.