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Consumption and Aggregate Constraints: International Evidence

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  • Joseph P. Dejuan
  • Maria Jose Luengo‐Prado

Abstract

This paper documents that region‐level consumption exhibits excess sensitivity to lagged region‐level income in Italy, Japan, Spain, the UK and West Germany. However, region‐specific consumption exhibits substantially less sensitivity to lagged region‐specific income. Moreover, excess sensitivity is inversely related to standard measures of openness and credit market integration and for most countries, it has decreased over time. These findings are consistent with the results reported by Ostergaard et al. [Journal of Political Economy (2002) Vol. 110, pp. 634–645] for US states and Canadian provinces, and provide empirical support for the hypothesis that closed‐economy constraints may partly be responsible for the excess sensitivity phenomenon in aggregate data.

Suggested Citation

  • Joseph P. Dejuan & Maria Jose Luengo‐Prado, 2006. "Consumption and Aggregate Constraints: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 81-99, February.
    • Handle: RePEc:bla:obuest:v:68:y:2006:i:1:p:81-99
    DOI: 10.1111/j.1468-0084.2006.00153.x
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    References listed on IDEAS

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    Cited by:

    1. Daragh Clancy & Lorenzo Ricci, 2022. "Economic sentiments and international risk sharing," International Economics, CEPII research center, issue 169, pages 208-229.
    2. Xiujian Chen & Shu Lin & W. Robert Reed, 2010. "A Monte Carlo evaluation of the efficiency of the PCSE estimator," Applied Economics Letters, Taylor & Francis Journals, vol. 17(1), pages 7-10, January.
    3. Xiujian Chen & Shu Lin & W. Robert Reed, 2005. "Another Look At What To Do With Time-Series Cross-Section Data," Econometrics 0506004, University Library of Munich, Germany.
    4. Daragh Clancy & Lorenzo Ricci, 2019. "Loss aversion, economic sentiments and international consumption smoothing," Working Papers 35, European Stability Mechanism.
    5. Faruk Balli & Eleonora Pierucci, 2015. "Globalization and international risk-sharing: do political and social factors matter more than economic integration?," CAMA Working Papers 2015-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Balli, Faruk & Pericoli, Filippo M. & Pierucci, Eleonora, 2018. "Globalization and international risk-sharing: The role of social and political integration," European Journal of Political Economy, Elsevier, vol. 55(C), pages 324-345.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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