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Prudent consumers: New evidence from the Consumer Expenditure Survey

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  • Kim, Seewon
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    Abstract

    Using Consumer Expenditure Survey data from 1986 to recent years, this study examines whether or not the precautionary saving motive is an important force governing consumer behavior. A time series model is obtained by aggregating a log-linearized Euler equation across households, in which the cross-sectional variance of consumption growth represents income uncertainty. The test uses an alternative measure of consumption that excludes some problematic expenditure items from the conventional measure and finds strong evidence for the presence of the precautionary motive. This result is in sharp contrast with the findings of previous cross-sectional estimations using the same data set. It is argued that cross-sectional estimations may be seriously affected by measurement errors whereas the current estimation is not.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 33 (2013)
    Issue (Month): C ()
    Pages: 77-85

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    Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:77-85

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Precautionary saving; Idiosyncratic risk; Measurement error; Time series model; Cross-sectional variance;

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    References

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