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Consumption, Leisure and Borrowing Constraints

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  • Kilponen Juha

    ()
    (Bank of Finland)

Abstract

We derive and estimate an aggregate Euler consumption equation in which non-separability between consumption and leisure and borrowing constrained households makes current consumption dependent on labour and asset (house) prices. Estimation results suggest that when labour is included in the aggregate consumption equation it proves to be more important than house prices in explaining the wide fluctuations in Finnish consumption data. Moreover, the evidence of excess sensitivity of consumption to income virtually disappears as the consumption Euler equation accounts for predictable changes in labour in the Finnish data.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 12 (2012)
Issue (Month): 1 (May)
Pages: 1-25

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Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:n:10

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Cited by:
  1. Kilponen, Juha & Vilmunen, Jouko & Vähämaa, Oskari, 2013. "Estimating intertemporal elasticity of substitution in a sticky price model," Research Discussion Papers 9/2013, Bank of Finland.
  2. Hashmat Khan & Abeer Reza, 2013. "House Prices, Consumption, and Government Spending Shocks," Carleton Economic Papers 13-10, Carleton University, Department of Economics.
  3. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.

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