The lambda model and "rule of thumb" consumers: An estimation problem in existing studies
AbstractCampbell and Mankiw's (1990) lambda model has frequently been used to estimate the fraction of rule of thumb consumers (i.e., consumers who do not smooth their consumption). However, the present note shows theoretically, as well as with a numerical illustration, that existing empirical applications of the lambda model imply a systematic underestimation of this fraction. The reason is that per capita values instead of aggregate values (which the model is designed for) are used.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).
Volume (Year): 40 (2011)
Issue (Month): 4 (August)
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Web page: http://www.elsevier.com/locate/inca/620175
Permanent income consumers Current income consumers Rule of thumb consumers The lambda model Aggregation bias;
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