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Modelling consumers' expenditure

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  • Rossi, Nicola
  • Schiantarelli, Fabio

Abstract

The purpose of this paper is to model the dynamics of consumers' response to changes in the relevant variables. Wealth and inflation effects on aggregate consumption expenditure are investigated. Real capital losses (or gains) due to inflation are accounted for in providing a more appropriate definition of income in a situation of rising prices. Empirical results for Italy show that, once the dynamic structure of the model is carefully specified, consumption expenditure can be explained in terms of a limited number of variables (income and wealth). Some evidence is found, moreover, in favour of redefining income, while additional inflation effects appear to be not significant.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 17 (1982)
Issue (Month): 3 ()
Pages: 371-391

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Handle: RePEc:eee:eecrev:v:17:y:1982:i:3:p:371-391

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  1. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  2. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
  3. Sargan, J D, 1980. "Some Tests of Dynamic Specification for a Single Equation," Econometrica, Econometric Society, vol. 48(4), pages 879-97, May.
  4. Modigliani, Franco & Tarantelli, E, 1975. "The Consumption Function in a Developing Economy and the Italian Experience," American Economic Review, American Economic Association, vol. 65(5), pages 825-42, December.
  5. William Poole, 1972. "The Role of Interest Rates and Inflation in the Consumption Function," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(1), pages 211-220.
  6. F. Thomas Juster & Paul Wachtel, 1972. "Inflation and the Consumer," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(1), pages 71-122.
  7. Deaton, Angus S, 1972. "Wealth Effects on Consumption in a Modified Life- Cycle Model," Review of Economic Studies, Wiley Blackwell, vol. 39(4), pages 443-53, October.
  8. Deaton, Angus S, 1977. "Involuntary Saving through Unanticipated Inflation," American Economic Review, American Economic Association, vol. 67(5), pages 899-910, December.
  9. Engle, Robert F, 1979. "A general Approach to the Construction of Model Diagnostics based upon the Lagrange Multiplier Principle," The Warwick Economics Research Paper Series (TWERPS) 156, University of Warwick, Department of Economics.
  10. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-63, September.
  11. F. Thomes Juster & Paul Wachtel, 1972. "A Note on Inflation and the Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(3), pages 765-778.
  12. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  13. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873.
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