estimation of the structure and elasticities of mexican imports in the period 1961 1979 abstract this paper examines the changing structure of mexican imports over the period 1961 1979 and its relationship to the acceleration of imports in 1978 1979 it is found that the more lenient policies adopted by the government in that period seem to be associated with the higher import levels a review of mexican policy with respect to foreign trade in 1980 seems to be consistent with the results reported in this paper

risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

the debt payment to income ratio as an indicator of borrowing constraints evidence from two household surveys liquidity constraints have been proposed as an important explanation for deviations from the rational expectations permanent income hypothesis this paper introduces to the liquidity constraint literature the ratio of a household s debt payments to its disposable personal income the debt service ratio dsr we find that a household with a high dsr is significantly more likely to be turned down for credit than other households also the consumption growth of likely constrained households identified using the dsr along with the liquid asset to income ratio is significantly more sensitive to past income than that of other households confirming the dsr s value in identifying constrained households

do actions speak louder than words household expectations of inflation based on micro consumption data survey data on household expectations of inflation are routinely used in economic analysis yet it is not clear how accurately households are able to articulate their expectations in survey interviews we propose an alternative approach to recovering households expectations of inflation from their consumption expenditures we show that these expectations measures have predictive power for consumer price index cpi inflation they are better predictors of cpi inflation than household survey responses and more highly correlated with professional inflation forecasts except for highly educated consumers consistent with the view that more educated consumers are better able to articulate their expectations we also document that households inflation expectations respond to inflation news as measured by the unpredictable component of inflation predictions in the survey of professional forecasters the response to inflation news tends to increase with households level of education consistent with the existence of constraints on household s ability to process this information

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

sensitivity of tests of the pih to alternative consumption proxies abstract this note compares tests of the permanent income hypothesis when alternative proxies for consumption are utilized while the results appear to be sensitive to the proxy of consumption j tests show no significant difference between the alternative models

does the choice of consumption measure matter an application to the permanent income hypothesis abstract food consumption in the panel study of income dynamics is used as a proxy for total consumption in many applications in economics including tests of the permanent income hypothesis tests of separability between consumption and leisure and tests of intergenerational altruism food however explains only a small fraction of the variation in total consumption i propose a measure of composite consumption based on predicted wealth and compare it both to food consumption and to skinner s 1987 measure of predicted consumption in a test of the permanent income hypothesis using a log linear intertemporal consumption function i find that food does not reject the permanent income hypothesis but both skinner s predicted consumption and the composite measure proposed here to reject the hypothesis

a micro econometric analysis of determinants of unsustainable consumption in the netherlands recently much attention has been given to the notion of sustainable consumption whereas environmental economics traditionally has focused environmental policy analysis on producers this new notion broadens the perspective to include environmental policies aimed at directly influencing consumer decisions regarding buying using and recycling products this could suggest policies that link not only to price incentives but also and especially to persuasive instruments such as education and information provision these policies might take into account certain characteristics of households such as lifestyle and family size this article presents a first econometric analysis of consumption in the context of environmental sustainability relationships between different types of household expenditures and a range of household characteristics are assessed based on a large micro data set of households for the netherlands use is made of various demand models and econometric techniques to adequately address theoretical and technical issues involved the article ends with a discussion of the implications of the results for environmental policy directed at stimulating sustainable consumption

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

paycheque receipt and the timing of consumption this article examines the consumption response to monthly paycheque receipt since the amount and arrival date of paycheques are known in advance the receipt of a paycheque does not coincide with the receipt of new information under the basic rational expectations life cycle permanent income hypothesis household consumption should not respond to paycheque arrival using data from the uk s family expenditure survey this article finds that household consumption is excessively sensitive to paycheque receipt the results cannot be explained by any underlying monthly expenditure fluctuations common to all households the presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

another look at the spending response to the 2001 income tax rebates this article revisits the spending response to the 2001 us tax rebates by focussing on two key aspects of how tax policy researchers use the consumer expenditure survey cex these two attributes which are often overlooked are as follows the measures used for consumption and the outlier criteria applied to the data first i reproduce the results in johnson et al 2006 which using the cex concluded that households immediately spent 20 40 of their rebates on nondurable consumption goods then i show how making two changes both of which are relied upon in the literature affects their results these adjustments reduce the estimated magnitude of the rebate s impact by as much as 100

subjective expectations and income processes in rural india this paper uses unique primary data on directly elicited individual subjective expectations to analyse and characterize the process that generates the income of poor rural indian households we validate and use responses to subjective expectations questions and a parametric assumption to fit a household specific probability distribution for future income combining computed moments from this distribution with data for actual current income we specify and estimate a dynamic model of household income we find that our households face a very persistent income process our paper is one of the first that uses subjective expectations data to model income processes

variations in farm consumption and their relationship to income an empirical investigation of illinois farm households empirical tests of household consumption have yielded mixed results regarding the validity of the life cycle permanent income lcpi hypothesis a significant problem with such studies is the diffi

tax reform and automatic stabilization an income tax provides implicit insurance by dampening the variability of disposable income and consumption using an empirical framework derived from the consumption insurance literature and data from the panel study of income dynamics we examine the effect of federal income tax reforms of the 1980 s on automatic stabilization of consumption overall erta and tra86 reduced consumption stability by about 50 percent recently increased eitc generosity restored or enhanced consumption insurance the welfare cost of moving to the post tra86 system is sizable for relatively risk averse households facing large income risk but is much more modest for the typical household jel h21

behavioral responses to risk in rural china does risk perpetuate poverty in a credit constrained economy jalan and ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural china one quarter of wealth is held in unproductive liquid forms but only a small share of this appears to be a precaution against income risk the authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point moreover that effect is confined largely to middle income groups high income households do not it seems need to hold unproductive cautionary wealth and the poor probably cannot afford to do so the authors find no evidence that income risk discourages schooling but risk does inhibit the out migration of labor generally the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting there is such an effect but it is small in magnitude and cannot be deemed an important cause of poverty

an analytical approximate solution to the problem of precautionary savings abstract this paper considers the problem of precautionary savings for an expected utility specification with finite horizon the exact solution is known for only a few cases numerical methods have limited applications because of bellman s curse of dimensionality this paper derives a simple analytical approximate solution for a general specification of the felicity function which is linear in the variance of the innovations on human wealth numerically the approximation is very accurate for realistic values of the parameters of the problem

income risk and farm consumption behavior abstract using panel data from illinois grain farmers a direct test of the relationship between income risk and farm consumption behavior is conducted the estimation results indicate that income risk significantly affects farm consumption and the results are robust using alternative risk measures this finding casts doubt on the relevance of the conventional life cycle permanent income hypothesis which implies that risk has no effect on consumption

precautionary behavior migrant networks and household consumption decisions an empirical analysis using household panel data from rural china abstract we develop a test of precautionary behavior in the consumption decisions of rural agricultural households among surveyed households facing a median level of consumption risk 10 of savings can be attributed to a precautionary motive and this increases to 15 for households with consumption per capita below the poverty line we next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases

transaction costs and consumption abstract the rational expectations permanent income hypothesis re pih fails to explain several well documented features of consumption behavior first the estimated marginal propensity to consume mpc for unanticipated transitory income shocks is often much higher than what the theory warrants second the estimated mpc is typically much bigger for small shocks of this type than for large shocks third consumption is often smoothed against large anticipated future income changes but not always against small changes this paper argues that these findings can be reconciled within a re pih model that includes a cash in advance constraint and an assumption that the agent is required to pay a fixed transaction cost to transfer wealth between cash and assets key results of the paper include first the agent follows an s s rule with respect to cash holdings when he makes wealth transfer decisions second the mpc within the no transfer band is higher than that out of the band and can be as high as exactly equal to one and third the agent smoothes consumption in response to news of large future income changes but not necessarily to small ones

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

international capital flows external assets and output volatility abstract cross sectional evidence for 119 developing emerging and developed countries shows over the last three decades that countries with an on average higher volatility of output growth experience more procyclical capital outflows over the business cycle than those countries with the same growth rate but a more stable output path this stylized pattern shows up in addition to the recently established fact that countries with higher macroeconomic uncertainty tend to accumulate higher external asset positions to explain this finding we present an open economy real business cycle model with stochastic growth rates in which higher uncertainty of the expected income stream increases the precautionary savings of households we show that the combination of income risk and the precautionary savings motive leads to both more procyclical capital outflows in the shorter run and a higher long run external asset position

the importance of business owners in assessing the size of precautionary savings abstract not properly accounting for differences between business owners and nonbusiness owners in studies of household wealth can lead to erroneous conclusions about the significance of different saving motives using data from the panel study of income dynamics from the 1980s and 1990s we show that within samples of both business owners and non business owners the amount of precautionary savings with respect to labor income risk is modest and accounts for less than 10 of total household wealth previous large estimates of the size of precautionary balances resulted from pooling these two groups together such pooling is inappropriate given that business owners face higher labor risk and accumulate more wealth than non business owners for reasons unrelated to precautionary motives

devaluation and the balance of payments adjustment in a developing economy an analysis relating to jamaica 1954 72 jamaica is a small open and structurally dependent export propelled country the island spans an area of 4411 square miles and has a population of nearly 2 million measured at 1965 prices the gross domestic product gdp increased from 297m j in 1954 to 912m j in 1972 or grew at an average rate of around 5 per annum 1 unemployment averaged around 20 and is increasing explosively exports are concentrated in three commodities bauxite alumina sugar and bananas together these three commodities averaged 76 of total commodity exports between 1954 and 1972 tourism is the second largest earner of foreign exchange increasing from 11 4m in 1954 to 107 9m in 1972 on the other hand the economy is heavily dependent on imports for capital goods raw materials fuels and intermediate goods for its import substitution and industrialization programmes also consumer goods to complement domestic supply or in some cases to meet the entire requirement of domestic demand for the period 1954 72 the im

why large scale bioenergy production on marginal land is unfeasible a conceptual partial equilibrium analysis a transparent and conceptual partial equilibrium model of global land use is used to explore long term effects of large scale introduction of bioenergy under different policy cases the transparency of the model and the consideration of clear cut policies provides a clear picture of how main mechanisms of land use competition work and how they influence the food and bioenergy systems the model is subjected to a detailed characterization in which parameters critical to the results and conclusions are detected and their impacts depicted a large scale introduction of bioenergy would raise food prices in all cases scenarios investigated and relative price increases of extensively produced crops would be at least twice as high as compared to intensively produced crops banning production of bioenergy from the most productive land limiting production to marginal land would reduce this price impact however we show that bioenergy is unlikely to ever be produced on any commercial scale only on land of low productivity the economic incentives would be strong for owners of more productive land to grow bioenergy anyway and out compete the more costly production on low yielding land large scale deforestation would become attractive in response to increased bioenergy demand especially for extensive production systems such as grazing

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

estimating the economic return to schooling on the basis of panel data this paper is concerned with estimating the economic return to schooling of men in the netherlands an iv approach is adopted to estimate a panel data model with random individual effects the fact that older individuals have relatively less schooling than younger individuals is exploited to construct instruments and gnp per worker at the time an individual turned 16 is included to control for birth cohort effects the estimated return to schooling is about 15 ignoring the endogeneity of schooling results in a lower return to schooling ignoring birth cohort effects results in a lower return to work experience

some estimates of the price and income elasticities of import demand for three caribbean countries this paper provides estimates of the short run and long run price and income elasticities of import demand for three developing economics the econometric evidence confirms that devaluation is an appropriate policy to correct for balance of payments disequilibrium in the caribbean and it supports the imf stabilization approach

college tuition and household savings and consumption abstract despite the high cost of college there has been little study of the adequacy of household savings and other resources available to fund college to gauge their adequacy this paper examines households standard of living as they pay for college using the consumer expenditure survey the main finding is that households appear to do a relatively good job smoothing their consumption into the academic year despite large expenses this is consistent with the life cycle theory of saving and consumption there is some evidence of a delayed decline in consumption and of a decline for households with children first beginning college but the magnitudes of these declines are rather small

unanticipated aggregate disturbances and tests of the life cycle consumption model several recent studies have used data on food consumption from the panel study of income dynamics psid to test t he rational expectations life cycle hypothesis against the alternative of prevalent liquidity constraints these tests invoke the rational expectations restriction that income forecast errors are independent of lagged information this restriction however applies only in a time series context it is possible that unanticipated macroeconomic disturbances cause forecast errors to be correlated with lagged information in a cross section of families the authors present evidence of such a correlation in the psid data show that this correlation biases previous tests of the life cycle model toward rejection and derive a proper test of the life cycle model using pa nel data copyright 1993 by mit press

unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

consumer response to the reagan tax cuts abstract this paper uses micro data from the consumer expenditure survey to estimate the response of household consumption to the second and third phases of the reagan tax cuts since these phases were pre announced they allow for an unusually clean test of the canonical life cycle permanent income model consumption is found to be excessively sensitive to the tax cuts counter to the model liquidity constraints and other standard explanations do not appear to explain this excess sensitivity the consumption response is larger than previously estimated for tax refunds and more concentrated in nondurables these differences have important implications for the structure of tax changes in particular for choosing between varying withholding rates versus varying lumpy final tax payments and refunds

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

the assessment household saving issues in theory and policy in this assessment we discuss the issues raised by the papers in this issue of the oxford review of economic policy in the context of economic models of household consumption and saving we also provide a discussion of what we consider to be some important areas in the current debate surrounding theories and evidence regarding saving behaviour we highlight the differences that arise from considering partial as opposed to general equilibrium models and in looking at developed as opposed to developing countries we also discuss current policy issues relating both to the adequacy of household saving and to the distribution of saving across households or across asset types as well as the need for more microdata on saving and asset holding

using subjective income expectations to test for excess sensitivity of consumption to predicted income growth abstract we test for precautionary saving and excess sensitivity of consumption to predicted income growth using a 1989 1993 panel survey of italian households that has measures of subjective income and inflation expectations these expectations provide a powerful instrument for predicting income growth the empirical specification controls for predictable changes in labor supply and allows a fairly general specification for the stochastic structure of the forecast error we find that consumption growth is positively correlated with the expected variance of income and uncorrelated with predicted income growth overall the results support the precautionary saving model

fiscal policy and economic recovery the case of the 1936 veterans bonus conventional wisdom has it that in the 1930s scal policy did not work because it was not tried this paper shows that scal policy though inadvertent was tried in 1936 and a variety of evidence suggests that it worked a decit nanced veterans bonus provided 3 2 million world war i veterans with cash and bond payments totaling 2 percent of gdp the typical veteran received a payment equal to annual per capita personal income this paper uses time series and cross sectional data to identify the eects of the bonus i exploit four sources of quantitative evidence a detailed household consumption survey cross state and cross city regressions aggregate time series and a previously unused american legion survey of veterans the evidence paints a consistent picture in which veterans quickly spent the majority of their bonus spending was concentrated on cars and housing in particular narrative accounts support these quantitative results a simple calculation suggests that the bonus added 2 5 to 3 percentage points to 1936 gdp growth

global land use implications of first and second generation biofuel targets recently an active debate has emerged around greenhouse gas emissions due to indirect land use change iluc of expanding agricultural areas dedicated to biofuel production in this paper we provide a detailed analysis of the iluc effect and further address the issues of deforestation irrigation water use and crop price increases due to expanding biofuel acreage we use globiom an economic partial equilibrium model of the global forest agriculture and biomass sectors with a bottom up representation of agricultural and forestry management practices the results indicate that second generation biofuel production fed by wood from sustainably managed existing forests would lead to a negative iluc factor meaning that overall emissions are 27 lower compared to the no biofuel scenario by 2030 the iluc factor of first generation biofuels global expansion is generally positive requiring some 25 years to be paid back by the ghg savings from the substitution of biofuels for conventional fuels second generation biofuels perform better also with respect to the other investigated criteria on the condition that they are not sourced from dedicated plantations directly competing for agricultural land if so then efficient first generation systems are preferable since no clear technology champion for all situations exists we would recommend targeting policy instruments directly at the positive and negative effects of biofuel production rather than at the production itself

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

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

do homeowners increase consumption after the last mortgage payment an alternative test of the permanent income hypothesis the maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners in the period after the last payment homeowners experience an increase in their disposable income our study interprets this event as an anticipated increase in income and tests whether households smooth consumption over the transition period as predicted by the rational expectation life cycle permanent income hypothesis we find households do not alter nondurable goods consumption in the period following the last mortgage payment instead they increase both financial savings and savings in durable goods such as house furnishings and entertainment equipment in the year of the last mortgage payment

expectations heterogeneous forecast errors and consumption micro evidence from the michigan consumer sentiment surveys the household data underlying the michigan index of consumer sentiment are used to test the rationality of consumer expectations and their usefulness in forecasting expenditure the results can be interpreted as characterizing the shocks that hit different types of households over time expectations are found to be biased and inefficient at least ex post people underestimated the disinflation of the early 1980s and the severity of recent business cycles people s forecast errors are also systematically correlated with their demographic characteristics in part because of time varying group level shocks further sentiment helps forecast consumption growth some of this rejection of the permanent income hypothesis is due to the systematic demographic components in forecast errors

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

risk pooling precautionary saving and consumption growth in this paper we model the evolution of income risk and consumption growth we decompose the time series innovation of the income process into its common and cohort specific components from these we compute conditional variances which are used as separate risk terms in a consumption growth equation using a long series of british household data we exploit the time series variation to identify precautionary saving effects and find strong evidence of their importance specifically after allowing for demographic and labour market status there is an independent role for income risk in explaining consumption growth rather than the component that is common across cohorts however it is the cohort specific element that is important in determining changes in consumption growth this result points to a failure of between cohort insurance mechanisms

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

are devaluations contractionary recently a number of authors have criticized the role of devaluations in traditional stabilization programs it has been argued that contrary to the traditional view devaluations are contractionary and generate a decline in aggregate output in spite of the renewed theoretical interest in the possible contractionary effects of devaluations the empirical evidence on the subject has been quite sketchy in this paper the khan and knight 1981 model is extended to empirically address the issue of contractionary devaluations the extended model considers the effect of money surprises fiscal factors terms of trade changes and devaluations on the level of real output the results obtained using a variance components procedure on data for 12 developing countries provide some support to the short run contractionary devaluation hypothesis the results obtained indicate that in the short run a devaluation will generate a decline in aggregate output it is also found that after one year a devaluation will have an expansionary effecton output the evidence suggests that in the long run devaluations will have no effect on output this abstract was borrowed from another version of this item

stabilization the political economy of overkill abstract this paper considers whether national and international aspects of the imf s stabilization programmes during the 1970s and early 1980s have resulted in a process of overkill or in other words a process of economic retrenchment which went much further than was strictly necessary in terms of what could have been regarded as reasonable objectives in the international context the author describes how the attack on inflation has become an end in itself at the expense of other stated objectives of the imf thus creating a distortion of its priorities the paper discusses errors of diagnosis which have led to this disorientation and explains why deflationary policies should not be regarded as a panacea the paper then considers the nead for equity and efficiency in the distribution of the political and economic costs of adjustment the next section of this paper discusses the assumptions underlying the imf s treatment of fund members and to what extent even handedness in the application of stabilization measures may result in inequality of burden sharing among borrowers problems related to monetarist theories and the consequent policies are examined followed by a consideration of the dangers involved in devising straightforward performance criteria in the form of precise monetary targets that can readily be monitored by the imf this means of evaluating the national adjustment policies success is seen to be unsatisfactory viz the frequency of stand by arrangement breakdowns and mistakes in forecasting the paper concludes that the concept of unilateral adjustment is not an acceptable basis for imf supervision of the international monetary system in addition care should be taken to avoid overkill in determining the degree and character of adjustment needed in stabilization programmes one possible solution to the extra burden imposed on the ldcs might be a liberalization of the compensatory financing facility with the objective of applying the same kind of regime to imports as to exports

credit card debt and consumption evidence from household level data this research investigates the relationship between credit card debt and consumption using household level data this is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the debt service ratio or total revolving credit we use a detailed monthly survey of credit card use to impute credit card debt to respondents from the consumer expenditure survey sample in contrast to some earlier studies using aggregate data we find a negative relationship between debt and consumption growth our work shows that a 1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2 investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt consumption relationship

the neoclassical growth model with heterogeneous quasi geometric consumers this paper investigates how the assumption of quasi geometric hyperbolic discounting affects the distributional implications of the standard one sector neoclassical growth model with infinitely lived heterogeneous agents the agents are subject to idiosyncratic shocks and face borrowing constraints we confine attention to an interior markov recursive equilibrium the consequence of quasi geometric discounting is that the effective discount factor of an agent is not a constant but an endogenous variable which depends on the agent s current state we show both analytically and by simulation that this new feature can significantly affect the distributional implications of the neoclassical growth model

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

a cobweb model of land use competition between food and bioenergy crops we present a model of interacting cobweb markets and apply it to land use competition between food and bioenergy crops in our model the markets are interlinked on the supply side by the limited availability of land therefore instabilities are transferred between the markets and we find that bioenergy demand affects food price volatility the agents in the model have heterogeneous production capacities representing variation in global land quality when we allow agents to choose price predictor we find that a more sophisticated but costly predictor is concentrated to some key parcels of land which enables the system to reduce instability significantly the system can also be brought closer to a stable state by introducing costs for changing production type but it may then be shifted away from the optimum situation predicted by the corresponding equilibrium model

new evidence on excess sensitivity of household consumption the monthly salaries and allowances of korean government employees are known in advance but vary greatly throughout the year using a korean monthly panel data set the present study examines how nondurable consumption expenditures in households headed by government employees respond to predictable income changes the study finds a moderate excess sensitivity in consumption that can be attributed to about 9 of the households further analysis shows that these 9 of the households have lower committed expenditures and are likely inattentive consumers

testing the cross section implications of friedman s permanent income hypothesis abstract we use modern household data and econometric methods to conduct some of the original tests of the permanent income hypothesis pih suggested and used by friedman 1957 a theory of the consumption function princeton university press princeton the data and methods are superior to those available to friedman allowing us to refine friedman s tests and perform tests he could not do the results provide overall though not universal support for pih

high cost credit and consumption smoothing in this paper i show that high cost credit helps households smooth consumption following periods of temporary financial distress after experiencing distress that is extreme weather events i find that access to high cost payday lending mitigates declines in overall spending and nondurable goods spending generally the results are particularly concentrated among households with a higher propensity to use payday credit or that have limited alternatives lower income households households with less than a college degree and households with low levels of saving these results highlight the consumption smoothing role that high cost credit plays for households with limited access to other types of credit

consumption and children abstract consumption by couples rises sharply in the beginning and falls later in life the causes of the early rise are hotly contested among the suggestions are rule of thumb behavior demographics liquidity constraints the precautionary motive and nonseparabilities between consumption and labor supply we develop two tests of the extreme hypothesis that only changes in family structure matter we estimate effects of the numbers and ages of children on consumption these estimates allow us to rationalize all of the increase in consumption without recourse to any of the causal mechanisms our estimates can be interpreted either as giving upper bounds on the effects of children or as evidence that the other causes are not important

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth

expected and realized income changes evidence from the dutch socio economic panel abstract income expectations play a central role in household decision making in the life cycle model for example consumption and savings decisions reflect expectations of future income in empirical applications where direct information on expectations is not available it is usually assumed that expectations are rational and reflected by observed future realizations in this paper we analyze direct subjective information on expected changes of household income in one panel wave of dutch families first we describe these data and investigate how the expectations can be explained by among other variables income changes in the past second we combine these data with information on realized income changes in the next panel wave and analyze the differences between expected and realized changes we find that on average households underestimate their future income changes significantly in particular this holds for those families whose income has fallen in the past

saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty several models of economic behavior currently compete for an explanation of individual wealth accumulation and savings patterns in this paper we focus in particular upon the role of income uncertainty and the role played by a retirement period during which time expected earnings are zero we nd that income uncertainty can alter savings patterns over the lifecycle signi cantly with the greatest in uence on the wealth of young individuals however its in uence on the aggregate stock of wealth is less than earlier theoretical work indicates 2001 elsevier science b v all rights reserved jel classixcation e21 e25 e60

households saving in china china in recent years the world s largest and fastest growing economy also has national saving rates that are among the highest in the world this article considers a variety of statistical issues that cloud the measurement of aggregate and household saving in china it also provides new empirical evidence on the importance of intertemporal considerations in explaining the variation in household saving across china s provinces given china s size and its high saving rates it is not surprising that in recent year s considerable theoretical and empirical effort has been devoted to understanding its saving behavior this research can be divided into two broad strands the first emphasizes the relevance for china of traditional equilibrium theories of saving ranging from simple keynesian consumption saving functions to variants of the life cycle and permanent income hypotheses the second argues that equilibrium theories of saving are unlikely to be relevant in an economy in transition from plan to market instead disequilibrium factors especially shortages and rationing in goods and credit markets explain china s saving experience more broadly china s saving rate remains unusually high relative to international experience even after controlling for some of the determinants of saving

the determinants of import demand in trinidad and tobago 1967 84 1988 the determinants of import demand in trinidad and tobago 1967 84 applied economics vol 20 no 3 pp 303 313

female labour supply and on the job search an empirical model estimated using complementary data sets we develop an empirical model of labour supply that is consistent with on the job search and which is identified and estimated by combining two data sets the u k family expenditure survey which contains information on income and expenditure and the u k labour force survey which has data on hours and job search behaviour we provide statistical evidence on the compatibility of the two samples for the purposes of estimating our model we find that search has a direct negative effect on hours of work and we establish a strong positive effect of wages on hours

rules of thumb versus dynamic programming this paper studies decision making with rules of thumb in the context of dynamic decision problems and compares it to dynamic programming a rule is a fixed mapping from a subset of states into actions rules are compared by averaging over past experiences this can lead to favoring rules which are only applicable in good states correcting this good state bias requires solving the dynamic program we provide a generalframework and characterize the asymptotic properties we apply it to provide a candidate explanation for the sensitivity of consumption to transitory income jel eoo c63 c61 e21

biomass price developments inhibit biofuel investments and research in germany the crucial future role of high yields abstract the competitiveness of conventional and advanced second generation biofuels is a critical issue for the implementation of a sustainable transport strategy we model biofuel competition under different feedstock cost development scenarios assessing what costs and cost developments can be expected for energy crops in germany and how these feedstock cost developments affect the competitiveness between biofuels perennial poplar was found to be the least cost energy crop with non perennial silage maize being strongly competitive at increasing feedstock price developments assuming increasing feedstock costs for the future neither conventional biodiesel from rape seed nor advanced biodiesel were found to be competitive in the long run feedstock costs were found to overshadow all other factors leading to costs for advanced biodiesel to be between 27 0 and 53 6 gj 1 in 2030 which is above most expectations of the advanced biofuels only synthetic natural gas was cost competitive under some circumstances but biomethane from silage maize and bioethanol from sugar beet were the strongest options as they combine high yields with high conversion efficiencies while avoiding the high upfront costs of advanced biofuels and the risk of switching to perennial crops however such a transition leads to less mobile feedstocks being used than presently and in the case of gaseous fuels requires stimulation of the demand side in order to function the high dependence on and increasing relevance of feedstock costs is characteristic for the biobased renewables only and is detrimental and inhibiting for investments and research and development efforts in contrast to for e g wind and solar photovoltaics and must be considered when designing policy for any sector of the bioeconomy

wealth inequality and asset pricing in an arrow debreu exchange economy with identical agents except for their initial endowment we examine how wealth inequality affects the equilibrium level of the equity premium and the risk free rate we first show that wealth inequality raises the equity premium if and only if the inverse of absolute risk aversion is concave in wealth we then show that the equilibrium risk free rate is reduced by wealth inequality if the inverse of the coefficient of absolute prudence is concave we also prove that the combination of a small uninsurable background risk with wealth inequality biases asset pricing towards a larger equity premium and a smaller risk free rate the model of the representative consumer a la lucas 1978 failed to explain observed security prices more specifically as first stated by mehra and prescott 1985 the model predicts an equity premium that is too low and a risk free rate that is too high given the observed low variability of consumption growth a recent strand of the literature with papers by constantinides and duffie 1996 heaton and lucas 1996 and krusell and smith 1997 for example explores whether incomplete asset markets and heterogeneity among consumers can explain these puzzles constantinides and duffie 1996 in particular conclude that it is at least in principle possible to generate larger equity premia when such ingredients are introduced the aim of this paper is not to provide another explanation of the puzzles but rather to better understand the relationship between asset prices the heterogeneity of consumers wealth and the market incompleteness when markets are complete heterogeneous consumers are able to equalize their marginal rates of substitution across states and across time as shown by constantinides 1982 this implies that the equilibrium of the heterogeneous consumer economy can be duplicated by the equilibrium in a lucas economy with a representative agent this means that taking account of the heterogeneity in the population alone cannot explain why the representative agent model is rejected hansen and singleton 1982 this does not mean however that the distribution of wealth in the population for example has no effect on asset prices in general in order to understand this consider the departure from an egalitarian distribution of wealth by introducing a mean preserving transfer of endowment under decreasing absolute risk aversion poorer agents will be more risk averse whereas wealthier people will be less risk averse there is no reason a priori for that the group s attitude towards risk be unaffected by this transfer we first show that if absolute risk tolerance i e the inverse of the arrow pratt coefficient of absolute risk aversion is concave then the risk aversion of the agent with the mean wealth will be smaller than the risk aversion of the representative agent thus if an outside observer overlooks wealth inequality he consequently underestimates the aversion to risk of society this leads to

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

competing land uses and fossil fuel and optimal energy conversion rates during the transition toward a green economy under a pollution stock constraint abstract we study the transition to a carbon free economy in a model with a polluting non renewable resource and a clean renewable resource transforming primary energy into ready to use energy services is costly and more efficient energy transformation rates are more costly to achieve renewable energy competes with food production for land and the food productivity of land can be improved at some cost to avoid catastrophic climate damages the pollution stock is mandated to stay below a given cap when the economy is not constrained by the cap the efficiency of energy transformation increases steadily until the transition toward the ultimate green economy when renewable energy is exploited its land use rises at the expense of food production food productivity increases together with the land rent but food production drops the food and energy prices increase and renewables substitute for non renewable energy during the constrained phase the economy follows a constant path of prices quantities efficiency rates food productivity and land rent a phenomenon we call the ceiling efficiency paradox

consumer spending during unemployment positive and normative implications using de identified bank account data we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance ui benefits we use the high frequency response to a predictable income decline as a new test to distinguish between alternative consumption models the sensitivity of spending to income we document is inconsistent with rational models of liquidity constrained households but is consistent with behavioral models with present biased or myopic households depressed spending after exhaustion also implies that the consumption smoothing gains from extending ui benefits are four times larger than from raising ui benefit levels

excess sensitivity of high income consumers using new transaction data i find considerable deviations from consumption smoothing in response to large regular predetermined and salient payments from the alaska permanent fund on average the marginal propensity to consume mpc is 25 for nondurables and services within one quarter of the payments the mpc is heterogeneous monotonically increasing with income and the average is largely driven by high income households with substantial amounts of liquid assets who have mpcs above 50 the account level data and the properties of the payments rule out most previous explanations of excess sensitivity including buffer stock models and rational inattention how big are these mistakes using a sufficient statistics approach i show that the welfare loss from excess sensitivity depends on the mpc and the relative payment size as a fraction of income since the lump sum payments do not depend on income the two statistics are negatively correlated such that the welfare losses are similar across households and small less than 0 1 of wealth despite the large mpcs

heterogeneous consumers and fiscal policy shocks this paper studies empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to di er depending on their individual characteristics we use data from the consumption expenditure survey cex to estimate individual level impulse responses as well as multipliers for government spending the main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their income and age levels in particular the wealthiest individuals tend to behave according to the predictions of standard rbc models whereas the poorest individuals tend to behave according to standard is lm non ricardian models most likely due to credit constraints furthermore government spending policy shocks tend to decrease consumption inequality forthcoming in journal of money credit and banking

social security national policies with international implications social security policies within individual countries are determined independently by national governments but the resulting outcome is inefficient compared with what would result from the international co ordination of policies this is because national social security policies produce international externalities via their effects on world interest rates an illustrative example suggests that the gains from co ordination are potentially significant virtually all countries operate social security or redistributive policies each chooses policies independently and to my knowledge no one either in a policymaking context or in the large literature on international policy co ordination has suggested that such decisions would benefit from international coordination 1 however a simple argument suggests that independent national social security policies are inefficient more specifically in the long run national governments make policy decisions which are too egalitarian this holds provided that social security lowers national saving in this case each national government faces a trade off between income redistribution and national saving and can be assumed to locate at the nationally optimal point on this trade off taking as given the world interest rate the latter is clearly not independent of the combined effect of all countries policies however if all countries expand social security the resulting fall in world saving will raise the world interest rate with adverse consequences for each national economy each country rationally ignores its own small contribution to the global outcome if this international externality were internalised by co ordination countries would relocate on the trade off between income redistribution and national saving demonstrating the existence of an externality says nothing about its quantitative significance i address this with an example which focuses on pay as you go payg retirement pensions in an economy with a mixture of forward looking and myopic individuals the pensions prevent destitution among retired myopes and thus effectively redistribute life time welfare but they also lower saving because of payg financing for all parameter values considered international co ordination of pensions policy decisions generates welfare gains which are larger for many parameter values substantially larger than recent estimates of the welfare gains from either the entire elimination of all cyclical fluctuations or the reduction of inflation and nominal interest rates from suboptimally high to optimal levels hence the issues addressed in the paper are quantitatively significant when judged against other frequently advocated i am grateful to two anonymous referees for helpful comments on earlier versions they are not responsible for the present version

wealth shocks unemployment shocks and consumption in the wake of the great recession we use data from the 2009 internet survey of the health and retirement study to examine the consumption impact of wealth shocks and unemployment during the great recession in the us we find that many households experienced large capital losses in housing and in their financial portfolios and that a non trivial fraction of respondents have lost their job as a consequence of these shocks many households reduced substantially their expenditures we estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3 3 percentage points respectively in addition those who became unemployed reduced spending by 10 percent we also distinguish the effect of perceived transitory and permanent wealth shocks splitting the sample between households who think that the stock market is likely to recover in a year s time and those who don t in line with the predictions of standard models of intertemporal choice we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks

a microeconometric comparison of household behavior between countries this article reviews the methodological issues associated with estimating and testing competitive markets with panel data and applies it to an important new arena international economics we investigate differences in housing consumption and male labor supply across households in germany and the united states with data from the german socio economic panel and the panel study of income dynamics observations are treated as equilibrium outcomes generated by a set of competitive markets that accommodate varying degrees of integration after controlling for differences in the sample populations and aggregate shocks we find that the estimated structural parameters are surprisingly similar across these two countries

combining census and survey data to trace the spatial dimensions of poverty poverty maps provide information on the spatial distribution of living standards they are an important tool for policymakers who rely on them to allocate transfers and inform policy design poverty maps art also an important tool for researchers who use them to investigate the relationship between distribution within a country and growth or other economic environmental or social outcomes a major impediment to the development of poverty maps has been that needed data on income or consumption typically are available only from relatively small surveys census data have the required sample size but generally do not have the required information this article uses the case of ecuador to demonstrate how sample survey data can be combined with census data to yield predicted poverty rates for the population covered by the census these poverty rates are found to be precisely measured even at fairly disaggregated levels however beyond a certain level of spatial disaggregation standard errors rise rapidly

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis