when today s rewards are tomorrow s endowments the effects of inequality on social competition abstract in this paper we study the role of inequality in a model of repeated social competition where endowments the resources used in the competition and rewards the resources obtained as prizes are connected because the rewards of today s competition determine the endowments of tomorrow s competition we find that the harshness of social competition is maximal for an intermediate level of inequality and that increasing or decreasing inequality beyond that level monotonically mitigates social competition up to completely eliminating it at the extremes if social competition is wasteful utilitarian welfare is maximized in case of equality a greater uncertainty about the connection between today s rewards and tomorrow s endowments mitigates social competition finally there emerge concerns for others resources that are downward and not upward with the value of high social standing which changes non monotonically in the resources of those with lower standing

an aggregate consumption function for canada a cointegration approach this study utilizes cointegration theory and error correction models ecms to specify a candidate dynamiac formulation of the aggregate consumption function using quarterly canadian date the variables entering the long run equlibrium relationship are tested for unit roots using a variety of techniques such as the dickey fuller the augemented dickey fuller and the phillips perron test profedures the engle and granger cointegration test and the fully modified consistent and efficient estimator of phillips and hansen are used to estimate the cointegration relationship johansen s maximum likelihood approach is also used to determine the rank of the cointegrating matrix the error correction model which appears to be a tentatively adequate conditional characterization of the date generating process revelas that disposable income wealth government expenditures relative prices and liquidity constraints proxied by the unemployment rate are important variables non nested tests are carried out against

consumption and the credit market abstract this paper uses a kalman filter model to allow the fraction of current income consumers to vary over time and shows that these consumers are liquidity constrained by relating this percentage to measures of credit market tightness

are poor people credit constrained or myopic evidence from a south african panel credit constraints are an almost ubiquitous assumption in development economics yet direct evidence for credit constraints is limited and many observations consistent with credit constraints are equally compatible with myopic non forward looking consumption or precautionary saving using household panel data and a source of widely anticipated income in south africa this paper tests and rejects the standard consumption model with perfect capital markets then myopic consumption and precautionary saving are tested as alternative explanations for the observed jumps in expenditure the standard model with credit constraints cannot be rejected in favour of myopic consumption or precautionary saving

long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

consumption in developing countries tests for liquidity constraints and finite horizons adjustment programs in developing countries emphasize the importance of reducing fiscal deficits in order to improve aggregate saving and investment performance recent theoretical analyses associated with the ricardian equivalence proposition however suggest that changes in the level of public sector saving may be offset by a change in private saving the empirical relevance of this proposition depends among other things on the length of consumers horizons and on the extent to which households are liquidity constrained empirical tests of a consumption model for a sample of developing economies do not support the equivalence propositions owing to the prevalence of liquidity constraints copyright 1989 by mit press

belief based refinements in signalling games abstract there are many economic problems which when modelled as games of incomplete information give rise to many sequential equilibria severely limiting the usefulness of the model there has recently been a large literature devoted to refining the set of equilibria in order to reduce this multiplicity by restricting the set of admissible disequilibrium beliefs this paper argues that the logical foundations of some refinements and the equilibria they focus on are problematic and further proposes an alternative refinement that avoids the difficulties we also provide an existence theorem covering a broad class of signalling games often studied in economics journal of economic literature classification numbers c72 c70 d82

trickle down consumption financial deregulation inequality and indebtedness over the last thirty years the u s experienced a surge in income inequality coupled with increasing levels of borrowing we model an olg economy populated by two types of household that care about how their consumption compares to that of their peers in this framework individual debt to income ratios decrease with income increases in consumption of rich households lead to increases in consumption of the rest and aggregate borrowing increases with income inequality we calibrate our model to evaluate the welfare implications of the process of nancial liberalization that began in the 1980s our analysis suggests that some of the nancial developments that lead to the recent expansion of credit may have decreased rather than increased welfare

durability and tests of the permanent income hypothesis using partially disaggregated consumption data since goods classified as non durable may in fact have a durable component random walk tests of the permanent income hypothesis using non durable data series may yield incorrect results this paper investigates this problem by first simulating a model of consumption to show the effects of durability on statistical tests of non durable consumption models and then by applying these tests to various disaggregated consumption series to determine the effect in practice the paper finds that there are significant differences in the behaviour of the series within the non durables and services catagories and that these differences may be related to durability the effect of this on standard tests of consumption is discussed

status intertemporal choice and risk taking this paper takes the position that an individual s concern for relative status is expressed in her preferences we embed this hypothesis in an otherwise conventional model of economic growth and examine its consequences the model generates two kinds of equilibrium in the first all individuals always follow a deterministic consumption and investment strategy such a strategy must be linear in output is independent of payo s and technology and only depends on the discount factor this sort of equilibrium exists when the individual cares only about status and the individual production function is convex in investment in contrast the other kind of equilibrium involves convergence to a steady state in which there is persistent and endogenously generated gambling this kind of equilibrium exists in more plausible circumstances the individual has a utility function that may depend on consumption per se as well as implied status and individual production functions are concave we characterize the unique steady state in such a situation and prove that any dynamic equilibrium path must converge to it risk taking arises not from the presumption of a utility function with strictly convex segments as in friedman savage but naturally from a view of utility as depending on relative status our steady state is broadly consistent with the stylized facts that individuals both insure downside risk and to gamble over upside risk and generates similar patterns of risk taking and avoidance across environments with quite di erent overall wealth levels finally in contrast to friedman 1953 endogenous risk taking here is generally pareto ine cient

testing for liquidity constraints in euler equations with complementary data sources previous tests for liquidity constraints using consumption euler equations have frequently split the sample on the basis of wealth arguing that low wealth consumers are more likely to be constrained we propose alternative tests using different and more direct information on borrowing constraints obtained from the 1983 survey of consumer finances in a first stage we estimate probabilities of being constrained which are then utilized in a second sample the panel study of income dynamics to estimate switching regression models of the euler equation our estimates indicate stronger excess sensitivity associated with the possibility of liquidity constraints than the sample splitting approach

merit approbation and the evolution of social structure in this paper we study a society in which individuals gain utility from income and from social approbation income is correlated with class approbation is given to an unobservable trait which must be signalled through the agent s social mobility i e class change mobility is driven by a simple mechanism involving inheritance effort and ability thus social structure class composition is affected by individuals quest for approbation and we study how that affects the emergence and multiplicity of long run social organizations including hybrid forms of dynasties and meritocracies specifically we observe that even though social mobility is driven purely by a meritocratic mechanism pure dynasties can emerge we then introduce a feedback between the size of the upper class and its income value so that effort levels and social structure are jointly endogenous we derive results on equilibrium effort levels and stationary when they exist social structures social organization can converge to a unique steady state multiple long run equilibria or cycles

status seeking and material affluence evaluating the hirsch hypothesis abstract when individuals hold a preference for high relative consumption competition to achieve social status can lead to inefficiently high levels of production and consumption contributing to natural resource depletion and environmental degradation in the 1970s fred hirsch argued that an increasing portion of expenditure is allocated to status seeking as average income rises this paper critiques this hypothesis from two points of view first we note examples from the historical and anthropological literatures suggesting that status seeking is often important in societies with relatively low incomes second we consider a set of analytical models that focus on the economic consequences of status seeking when social status is defined in terms of the algebraic difference between an individual s consumption of a status good and the average consumption level in society hirsch s hypothesis holds true and growth in the level of productivity and output can lead to declines in human welfare if on the other hand status is linked to the ratio of individual and average consumption hirsch s hypothesis is valid only if social status and non status goods are poor substitutes the paper also considers two cases in which social status is defined in terms of the amount of time people devote to status oriented activities under this assumption productivity growth leaves time use unchanged though the value of time devoted to status signaling increases in proportion to total expenditure

ricardian equivalence rational expectations and the permanent income hypothesis the ricardian equivalence proposition and the permanent income hypothesis are tested in an intertemporal consumption model with rational expectations the representative consumer incorporates the government budget constraint an alternative hypothesis of incomplete tax discounting is nested within this model a deterministic time trend is rejected for the variables of the model variables exhibit instead a stochastic trend the permanent income model is not rejected by annual u s data i e no excess sensitivity is found the evidence with respect to ricardian equivalence is mixed the empirical study employs theorems from the cointegration literature and specifically addresses issues of nonstationary regressors copyright 1990 by ohio state university press

the theoretical developments initiated by haberler but named for pigou do not provide sufficient grounds for rejecting keynes s key theoretical proposition this paper examines a claim made in the introduction to milton friedman s presidential address to the american economic association and that is now taken for granted in orthodox economics according to friedman the theoretical developments initiated by haberler but named for pigou provide sufficient grounds for rejecting keynes s key theoretical proposition and the economics of keynes in its entirety the problem with this claim is that it turns out given the scrutiny that it clearly deserves to be false the theoretical developments initiated by haberler but named for pigou do not provide sufficient grounds for rejecting keynes s key theoretical proposition and thus the economics of keynes as a whole there is no legitimate rationale for believing in other words even in a world of flexible prices that the system will tend naturally toward a position of equilibrium at full employment

expectations based reference dependent life cycle consumption this study incorporates a recent preference specification of expectations based loss aversion which has been applied broadly in microeconomics into a classic macro model to offer a unified explanation for three empirical observations about life cycle consumption first loss aversion explains excess smoothness and sensitivity that is the empirical observation that consumption responds to income shocks with a lag intuitively such lagged responses allow the agent to delay painful losses in consumption until his expectations have adjusted secondly the preferences generate a hump shaped consumption profile early in life consumption is low due to a first order precautionary savings motive however as uncertainty resolves over time this motive is dominated by time inconsistent overconsumption that eventually leads to declining consumption towards the end of life thirdly consumption drops at retirement prior to retirement the agent wants to overconsume his uncertain income before his expectations catch up post retirement however income is no longer uncertain and overconsumption is associated with a sure loss in future consumption as an empirical contribution i structurally estimate the preference parameters using life cycle consumption data my estimates match those obtained in experiments and other micro studies and generate the degree of excess smoothness observed in macro consumption data

permanent income liquidity and adjustments of automobile stocks evidence from panel data a recent article by bernanke 1984 tests the rational expectations permanent income hypothesis using panel data on automobile expenditures he finds no evidence refuting the hypothesis this paper incorporates a threshold adjustment process into bernanke s model estimations based on a subset of the data used by bernanke reveal evidence that resale market imperfections and credit market constraints have important effects on automobile expenditures

the predictability of aggregate consumption growth in oecd countries a panel data analysis we examine aggregate consumption growth predictability we derive a dynamic consumption equation which encompasses relevant predictability factors habit formation intertemporal substitution current income consumption and non separabilities between private consumption and both hours worked and government consumption we estimate this equation for a panel of 15 oecd countries over the period 1972 2007 taking into account parameter heterogeneity endogeneity and error cross sectional dependence using a gmm version of the common correlated effects mean group estimator small sample properties are demonstrated using monte carlo simulations the estimation results support income growth as the only variable with significant predictive power for aggregate consumption growth

intertemporal substitution imports and the permanent income model abstract we examine the importance of intertemporal substitution in u s import consumption using a model of permanent income that allows for random preference shocks and additive separability the latter feature allows us to take two estimation approaches in the first approach we show that there is a cointegrating restriction imposed by the first order conditions of the model which allows us to estimate the intertemporal elasticity of imported and domestic goods consumption in the second approach we estimate the euler equations using generalized method of moments this approach however requires us to place some restrictive assumptions on the model that are not required for the first estimation approach thus the two different approaches allow an assessment of the severity of these restrictive assumptions which are often imposed in the literature

social status in economic theory social distinction or status is an important motivation of human behaviour this paper provides a selective survey of recent advances in the economic analysis of the origins and consequences of social status concerns first a selection of empirical research from a variety of scientific disciplines is discussed to underpin the further theoretical analysis i then consider the origins and determinants of tastes for status discuss the endogenous derivation of such preferences for relative standing and assess the different formalizations of these preferences subsequently the consequences of preferences for status are studied for a variety of problems and settings the last section discusses a number of implications of status concerns for normative economics and public policy

excess sensitivity of consumption to current income liquidity constraints or myopia this paper asks whether the empirical rejection of the rational expectations permanent income hypothesis occurs because agents are myopic in the sense that the marginal propensity to consume out of transitory income is non zero or because some agents face liquidity constraints the finding that the estimate of the mpc out of transitory income is dramatically affected in both magnitude and statistical significance by the inclusion of a proxy for liquidity constraints suggests that liquidity constraints are an important part of the explanation of the observed excess sensitivity of consumption to current income la sensibilite excessive de la consommation au revenu courant contraintes sur la liquidite ou myopie ce memoire examine la question a savoir pourquoi l hypothese du revenu permanent avec anticipations rationnelles n est pas v6rifiee empiriquement est ce parce que les agents economiques sont myopes i e que leur propension marginale a consommer a partir de leur revenu transitoire n est pas nulle ou bien est ce que certains agents economiques font face a des contraintes sur leur liquidite le fait que l estimation de la propension marginale a consommer le revenue transitoire est affectee par l inclusion d une variable qui tente de capturer l importance des contraintes sur la liquidit6 tant dans l 6valuation de sa taille que dans sa signification statistique suggere que ces contraintes jouent un role important dans l explication de cette sensibilite excessive qu on observe de la consommation aux changements dans le niveau de revenu courant almost all the recent empirical tests of the rational expectations permanent income hypothesis re pih have rejected the hypothesis using a rich variety of data sets and estimation methods the empirical work indicates that the failure of the re pih is significant both statistically and quantitatively the null hypothesis in this empirical literature typically consists of the joint hypothesis that 1 agents expectations are formed rationally 2 desired consumption is determined by permanent income and 3 capital markets are perfect in the sense that agents can lend or borrow against 1 studies rejecting the re pih include blinder 1981 flavin 1981 hall and mishkin 1982 hayashi 1982 and sargent 1978 in his original paper hall 1978 did not reject the re pih decisively however flavin 1981 showed that with a minor alteration in the specification of the alternative hypothesis the re pih could be rejected using hall s test and data set bernanke 1981 studying panel data on automobile expenditures did not find evidence against the hypothesis for an extensive survey of the empirical literature on the rational expectations permanent income hypothesis see king 1983 canadian journal of economics revue canadienne d economique xviii no 1 february fevrier 1985 printed in canada imprime au canada 0008 4085 85 117 36 1 50 canadian economics association this content downloaded from 157 55 39 17 on wed 31 aug 2016 05 08 58 utc all use subject to http about jstor org terms

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

the existence of ramsey equilibrium the authors demonstrate existence of a perfect foresight equilibrium under borrowing constraints in a one sector model with infinitely lived heterogeneous agents the class of admissible preferences includes but is not limited to recursive preferences existence is proven using a t 2ctonnement argument under appropriate conditions on preferences and technology a new measure of discounting the norm of marginal impatience is used to determine which technologies are admissible depending on the norm of marginal impatience the admissible technology may either allow for permanent growth or have a maximum sustainable stock copyright 1991 by the econometric society

social organization status and savings behavior abstract we develop a model of status seeking in the presence of incomplete information and derive its implications for aggregate savings status seeking endogenously takes the form of conspicuous consumption its impact on savings depends on the scheduling of the contests for status over the life cycle if individuals engage in conspicuous consumption when old aggregate savings are increased we also study the role of social segmentation while social segmentation reduces the inequality across status seekers and fuels social rivalry under complete information we show that under incomplete information social segmentation weakens the incentive to strive for greater status

inequality and growth in the presence of competition for status abstract we investigate a simple endogenous growth model where agents care about their social status as greater equality tends to provide greater incentives to differentiate oneself redistribution may increase wasteful competitive consumption and lead to lower growth

the observational implications of labor contracts in a dynamic general equilibrium model economies are studied where labor contracts even without changing real allocations can make equilibria appear different one basic example is that wage observations generated by long term employment contracts are biased measures of theoretical market wages this idea is analyzed in a dynamic stochastic economic model including both overlapping generations of finite lived workers and infinite horizon employers so that the implications for business cycle life cycle and cross sectional phenomena can be explicitly addressed understanding contracts in this way potentially allows us to reconcile several ostensibly anomalous aspects of the data with equilibrium theory

conspicuous consumption and political regimes evidence from east and west germany abstract this paper investigates the influence of political regimes on the relative importance of conspicuous consumption we use the division of germany into the communist gdr and the democratic frg and its reunification in 1990 as a natural experiment relying on household data that are representative for germany our empirical results strongly indicate that conspicuous consumption is relatively more important in east germany significantly although we find some convergence a considerable gap in conspicuous consumption expenditures remains even 18 years after the german reunification

housing booms and local spending abstract this paper examines how local governments adjust their spending in response to a temporary revenue windfall generated by a housing boom we focus on spanish local governments because of the intensity of the last housing boom bust experienced there and the large share of construction related revenues they obtain we find that windfall revenues were mostly used to increase expenditures above all current we seek to determine whether this behaviour was due to political myopia incumbents in contested elections increasing expenditures to convince uninformed voters about their competence or to extrapolation bias leading to the overstatement of the persistence of revenue shocks we find evidence for both mechanisms the propensity to spend is higher where local incumbents were elected by a narrow vote margin and lower in places with past volatility experience finally we also examine what happens during the bust and find that governments enjoying large windfalls during the boom had to cut their spending abruptly above all capital and raise taxes the adjustment during the bust was actually greater in those places that overspent more during the crisis

testing short run neutrality abstract this paper derives and implements a robust test of the short run neutrality of anticipated policy that is valid when the information set used to form expectations is incorrectly specified and the effect of unanticipated policy on deviations of output from the natural rate varies over time the test is based on the observation that if unanticipated policy affects output with a maximum lag of n quarters then any information prior to n should be uninformative about output movements the test is applied to quarterly data for the united states and the paper concludes that policy is not neutral

wealth seeking reconsidered abstract if individuals are interested in their relative wealth position they engage in contests for wealth this leads to a steady state with overaccumulation in a simple growth model it is shown that if some individuals are engaged in wealth seeking activity but others are not the latter might benefit however wealth seeking is not welfare enhancing under usual assumptions concerning production technology the steady state equilibrium is characterized by a marginal productivity of capital that is below the steady state rate of time preference and by emergence of a class structure

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

social status education and growth this paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth we consider two sources of heterogeneity among workers nonwage income and innate ability a greater emphasis on status may induce the wrong individuals that is those with low ability and high wealth to acquire schooling causing workers with high ability and low wealth to leave the growth enhancing industries this crowding out effect taken alone discourages growth growth may be enhanced by a more egalitarian distribution of wealth which reduces the demand for status

conspicuous consumption and race evidence from south africa abstract a century ago thorstein veblen introduced socially contingent consumption into the economic literature this paper complements the scarce empirical literature by testing his conjecture on south african household data and finds that black and coloured households spend relatively more on visible consumption than comparable white households following the approach of charles et al 2009 this paper explores whether the differences in visible expenditures can be explained with a signaling model of status seeking moreover it is assessed to which extent positional concerns motivate conspicuous consumption although the socially contingent share in visible consumption increases with income different incentives to consume conspicuously seem to explain that at every level of income black households spend relatively more on visible consumption than comparable white households in contrast to the findings of charles et al 2009 where differential spending on conspicuous consumption can be found also within each group separately the model s core hypothesis fails to hold within the group of white south africans

conspicuous consumption and race using nationally representative data on consumption we show that blacks and hispanics devote larger shares of their expenditure bundles to visible goods clothing jewelry and cars than do comparable whites these differences exist among virtually all subpopulations are relatively constant over time and are economically large although racial differences in utility preference parameters might account for a portion of these consumption differences we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household s economic position using merged data on race and state level income we demonstrate that a key prediction of the status signaling model that visible consumption should be declining in reference group income is strongly borne out in the data for each racial group moreover we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption

consumption adjustment under time varying income uncertainty we study the effect of income uncertainty on consumption in a model that includes precautionary saving in contrast to previous studies we focus on time series variation in income uncertainty our time series measure of income uncertainty is constructed from a panel of forecasts we find evidence of precautionary saving in that increases in income uncertainty are related to increases in aggregate rates of saving we also find evidence that anticipated income growth rates have less explanatory power for consumption growth rates after conditioning on income uncertainty the evidence indicates the presence of forward looking consumers who gradually adjust precautionary savings in response to changing income uncertainty

debt neutrality theory and evidence from developing countries this paper reviews the ricardian barro hypothesis and tests the basic postulate of the model for a sample of developing countries including mexico and venezuela two specifications are utilized the first is based on the simple consumption model associated with the work of kormendi 1983 the alternative is based on a model developed by haque and montiel 1987 the outcome of the two stage least square estimation technique rejected the hypothesis in mexico trinidad and tobago and venezuela all countries which underwent adjustment programmes however these results were reversed when the alternative model was utilized due to liquidity constraint and possibly the yaari blanchard effect the contradictory outcome alludes to the sensitivity of the results to the model specified

an analytic solution to a stochastic consumption saving problem with liquidity constraints a substantial amount of recent work focusses on the importance of liquidity constraints and their effect on consumption behavior 5 liquidity constraints play an important role in determining the path of consumption over time when income is uncertain and individuals are unable to borrow they will take precautions against being caught short of income in the future this precautionary saving has been used as an explanation for several consumption puzzles 7 and as a channel for fiscal policy to influence the economy 1 liquidity constraints are also important in the analysis of government policy for example the effectiveness of fiscal policy depends on the consumers ability to smooth their path of consumption when faced with a change in the path of income as evidenced in the controversy over ricardian equivalence 2 finally liquidity constraints have been offered as a reason permanent income models are rejected by excess sensitivity tests 4 6 if individuals cannot adjust current consumption to new information about future consumption then consumption changes more than expected when the adjustment in income arrives past income helps predict future consumption since it affects the likelihood of being liquidity constrained in the future for these reasons it is important to understand the mechanisms through which liquidity constraints influence individual s consumption saving decisions despite the existence of a large body of empirical work analytic solutions have not yet been obtained for consumption models that include liquidity constraints instead solutions are characterized using indirect methods such as numerical techniques or other approximations this paper derives an analytic solution to a 3 period consumption savings model with uncertain income and liquidity constraints and examines the economic implications of the solution for consumer behavior the results show that liquidity constraints induce precautionary saving and excess sensitivity on the part of an optimizing individual further these two phenomena occur jointly since both arise from the consumer s desire to avoid being liquidity constrained in the future the analytic solution also allows us to examine how consumption saving behavior changes with variations in model parameters and to characterize the threshold level of wealth where the liquidity constraint becomes irrelevant

on limiting the market for status signals abstract in many societies individuals care how others view them in their efforts to impress such individuals engage in consumption signals which attempt to establish higher levels of status than their true status type this leads to an inefficiency which offers the possibility of a pareto improving tax policy the impacts of tax policy and benefits on the signalling equilibrium are considered

business cycle fluctuations and excess sensitivity of private consumption we investigate whether business cycle fluctuations affect the degree of excess sensitivity of private consumption growth to disposable income growth using multivariate state space methods and quarterly us data for the period 1965 2000 we find that excess sensitivity is significantly higher during recessions

survey expectations in the time series consumption function this paper introduces survey based measures of expectations and uncertainties about income and real interest rates into an otherwise conventional consumption function the survey dat a contribute more than conventional variables to the explanation of changes in consumption the hypothesis that consumption follows a random walk is rejected in favor of a model in which consumption responds with a lag to changes in expected income growth the significance of inflation in earlier estimates of the u s consumpti on function is shown to be spurious and due to a strong negative correlation between expected inflation and expected income growth copyright 1992 by mit press

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

the relative income hypothesis abstract despite its theoretical dominance the empirical case in favor of the permanent income hypothesis is weak contrary to one of its basic implications a growing body of evidence suggests that rich households save a higher proportion of their permanent income than poor households we propose an overlapping generations economy where households care about relative consumption as a result an individual s consumption is driven by the comparison of his lifetime income and the lifetime income of his reference group a permanent income version of duesenberry s 1949 relative income hypothesis across households the savings rate increases with income while aggregate savings are independent of the income distribution

are consumers ricardian when some are liquidity constrained evidence for the united states this paper formulates and estimates a revised specification of evans 1988 test for ricardian equivalence which incorporates the possible presence of liquidity constrained consumers if liquidity constrained consumers are significant in number tests using aggregate consumption data may tend to reject the ricardian equivalence hypothesis when the model allows for liquidity constraints a test which incorporated liquidity constrained consumers could not reject ricardian equivalence over the sample period 1946 91 while the proportion of aggregate consumption which is liquidity constrained is found to be significant it does not appear large enough to affect the test for ricardian equivalence

aspirations health and the cost of inequality how does inequality motivate people and at what cost in a model of perpetual youth people have heterogeneous upward looking aspirations they value their consumption relative to the conditional mean of those above them in the distribution their survival depends on health capital produced from time investment and health goods higher fundamental inequality working through the aspirations gap motivates people to work and save more economic outcomes improve but income and consumption inequality worsen because the poor have less capacity to respond on the labor market by diverting resources from health production aspirations also worsen mortality especially for the poor though relative income has a strong negative effect on personal health inequality has a weak effect on population health explaining an empirical puzzle on the relative income and health gradient

is the ricardian equivalence proposition an aerie fairy theory for europe using a theoretical model based on dynamic optimizing agents we test empirically the ricardian equivalence proposition rep for the eu 15 countries the theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the rep using recently developed end of sample cointegration breakdown tests we find evidence of a change in the fiscal behaviour of individuals during the last decade after the introduction of a fiscal rule namely the maastricht criteria for most countries in the sample the results concerning the direction of change are mixed

ricardian equivalence empirical evidence from developing economies abstract the strong underlying assumptions of the barro ricardo equivalence proposition rep raise doubts on its validity especially for developing countries this paper attempts to analyze the validity of the rep and the sources of deviation from rep for a large sample of developing countries although the results are of a mixed nature they suggest that the presence of liquidity constrained individuals may be the source of deviation from the rep the analysis also indicates that public spending is a poor substitute for private consumption and hence implies that temporary increases in public spending may have some expansionary effect on aggregate demand

world public debt and real interest rates real interest rates appear to have risen in virtually all industrialized countries in the 1980s and 1990s relative to levels that prevailed in earlier decades there is concern that this may reflect higher public debt which is crowding out private sector activity there has also been increasing international capital market integration implying that interest rates in any country may be sensitive to global fiscal developments this paper estimates the effects of such fiscal developments on real interest rates in nine industrial countries the results imply that the increase in oecd wide government debt since the late 1970s was a major factor in the rise in real interest rates copyright 1999 by oxford university press

consumption and portfolio choice under internal multiplicative habit formation this paper explores the optimal consumption and investment behavior of an individual who derives utility from the ratio between his consumption and an endogenous habit we obtain closed form policies under general utility functionals and stochastic investment opportunities by developing a nontrivial linearization to the budget constraint this enables us to explicitly characterize how habit formation affects the marginal propensity to consume and optimal stock bond investments we also show that in a setting that combines habit formation with epstein zin utility consumption no longer grows at unrealistically high rates at high ages and investments in risky assets decrease

conspicuous consumption snobbism and conformism abstract we develop a model in which consumers purchase a conspicuous good in order to signal high income and thereby achieve greater social status in equilibrium the signalling value of conspicuous consumption depends in an identifiable way on the number of consumers and consumer behaviour is characterized by either snobbism or conformism the market demand curve for the conspicuous good may exhibit a positive slope if consumers are conformist we derive some unconventional policy implications concerning the taxation of luxuries and the voluntary provision of public goods

unemployment and liquidity constraints summary we present a dynamic framework for the interaction between borrowing liquidity constraints and deviations of actual hours from desired hours both measured by discrete valued indicators and estimate it as a system of dynamic binary and ordered probit models with panel data from the panel study of income dynamics we analyze a household s propensity to be liquidity constrained by means of a dynamic binary probit model we analyze qualitative aspects of the conditions of employment namely whether the household head is involuntarily overemployed voluntarily employed or involuntarily underemployed or unemployed by means of a dynamic ordered probit model we focus on the possible interaction between the two types of constraints we estimate these models jointly using maximum simulated likelihood where we allow for individual random effects along with an autoregressive process for the general error term in each equation a novel feature of our method is that it allows for the random effects to be correlated with regressors in a time invariant fashion our results provide strong support for the basic theory of constrained behavior and the interaction between liquidity constraints and exogenous constraints on labor supply copyright 2007 john wiley sons ltd

non linear adjustments on the excess sensitivity of consumption with liquidity constraints abstractthis article investigates the role of domestic credit markets in explaining the excess sensitivity of private consumption to disposable income using heterogeneous panel data of 19 oecd countries over the last two decades we find that the degree of the excess sensitivity has decreased as the liquidity constraints of households have been alleviated the estimated time varying coefficients for the marginal propensity to consume vary between 0 16 for the countries with low liquidity constraints and 0 38 for those with high liquidity constraints we also provide evidence that the excess sensitivity has been more prominent after the global financial crisis in some advanced countries such as japan spain and the united states where sharp deleveraging of households has been ongoing

consumption and unemployment this paper examines consumption changes of workers following experiences of unemployment in different stochastic environments the model developed in the paper predicts that consumption changes following unemployment spells should be small for workers the higher are their layoff and recall probabilities these predictions are confirmed in estimates with panel data

the spirit of capitalism and stock market prices in existing theory wealth is no more valuable than its implied consumption rewards in reality investors acquire wealth not just for its implied consumption but for the resulting social status max m weber 1958 refers to this desire for wealth as the spirit of capitalism the authors examine both analytically and empirically implications of weber s hypothesis for consumption savings and stock prices when investors care about relative social status propensity to consume and risk taking behavior will depend on social standards and stock prices will be volatile the spirit of capitalism seems to be a driving force behind stock market volatility and economic growth copyright 1996 by american economic association

do liquidity constraints vary over time evidence from survey and panel data note much empirical work has been devoted to estimating the proportion of liquidity constrained consumers p and the fraction of income held by these liquidity constrained consumers l a common feature of these studies is that p and l are taken to be constant over time this paper attempts to determine whether this assertion is empirically justified by providing new evidence on the extent of liquidity constraints using survey and panel data the authors find that p and l do vary over time with trend and cyclical components but that over the period 1968 82 these fluctuations have not been dramatic copyright 1990 by ohio state university press

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

india s manufactured exports comparative structure and prospects abstract the technological structure of export matters for their growth learning and path dependence mean that structures are difficult to change as technologies evolve trade liberalization per se is insufficient countries need to upgrade domestic skill and technology and attract sophisticated foreign direct investment fdi to dynamise their export structures a comparative analysis of indian manufactured exports suggests that their structure and positioning are not suited to sustained growth the base for rapid structural change through fdi or domestic capabilities is weak the current export slowdown in india reflects external conditions and may end soon however this does not assure rapid future growth

social organization in an endogenous growth model we develop an endogenous growth model in which individuals form matches in order to consume goods that are not explicitly traded the matching process endogenously generates a concern for relative wealth and is thereby beneficial for capital accumulation and economic growth we then study how social segmentation in the matching process affects economic growth under strong segmentation social competition over mates occurs inside homogeneous groups this homogeneity increases the severity of the rat race of wealth accumulation and fosters economic growth

financial liberalization and aggregate consumption the evidence from taiwan this paper considers the effect of financial liberalization on aggregate consumption with a special focus on taiwan which has sustained a high savings rate and a rapid rate of economic growth under financial dualism but has undertaken financial liberalization since the 1980s leading to an expansion of the formal financial sector the paper finds that because of an active informal financial sector consumers in taiwan are less credit constrained than in other developing countries however the expansion of the formal financial sector has contributed to some relaxation of consumer credit constraints and thereby changes in the income and interest elasticities of consumption it also has brought about a higher consumption growth rate offsetting at least partially the positive growth effect of financial liberalization which helps improve the efficiency in finanacial intermediation

individual well being in a dynamic perspective this paper explores the determinants of individual well being as measured by self reported levels of satisfaction with income making full use of the panel data nature of the german socio economic panel we provide empirical evidence for well being depending on absolute and on relative levels of income in a dynamic framework this finding holds after controlling for other influential factors in a multivariate setting the main novelty of the paper is the consideration of dynamic aspects individual s own history as well as the relative income performance with respect to the others living in the society under analysis do play a major role in the assessment of well being