Advanced Search
MyIDEAS: Login to save this article or follow this journal

A theory of aggregate consumption

Contents:

Author Info

  • Yun K. Kim

    (Bowdoin College, Brunswick, USA)

  • Mark Setterfield

    (Trinity College, Hartford, USA)

  • Yuan Mei

    (University of Chicago, USA)

Abstract

We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and that the treatment of debt-servicing commitments as a substitute for savings by these households creates the potential for ‘sudden stops’ in consumption spending (and hence aggregate demand). An earlier version of this paper was presented at the University of Leeds in October 2012. The authors would like to thank two anonymous referees, Barry Cynamon, and seminar participants at the University of Leeds for their helpful comments. Any remaining errors are our own.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.elgaronline.com/abstract/journals/ejeep/11-1/ejeep.2014.01.03.xml
Download Restriction: Restricted access

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Edward Elgar in its journal European Journal of Economics and Economic Policies: Intervention.

Volume (Year): 11 (2014)
Issue (Month): 1 (April)
Pages: 31-49

as in new window
Handle: RePEc:elg:ejeepi:v:11:y:2014:i:1:p31-49

Contact details of provider:
Web page: http://www.elgaronline.com/ejeep

Related research

Keywords: consumption; household borrowing; household debt; relative income hypothesis;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 963-1002, August.
  2. Annamaria Lusardi & Daniel Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," CeRP Working Papers, Center for Research on Pensions and Welfare Policies, Turin (Italy) 116, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  3. Simon Mohun, 2006. "Distributive shares in the US economy, 1964--2001," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 30(3), pages 347-370, May.
  4. Gilberto Tadeu Lima & Mark Setterfield, 2008. "Inflation targeting and macroeconomic stability in a Post Keynesian economy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 30(3), pages 435-461, April.
  5. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 728-41, September.
  6. Edward Wolff & Ajit Zacharias, 2009. "Household wealth and the measurement of economic well-being in the United States," Journal of Economic Inequality, Springer, Springer, vol. 7(2), pages 83-115, June.
  7. Marc Lavoie, 2009. "Cadrisme within a Post-Keynesian Model of Growth and Distribution," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(3), pages 369-391.
  8. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 25(1), pages 3-16, Spring.
  9. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report, Federal Reserve Bank of Minneapolis 436, Federal Reserve Bank of Minneapolis.
  10. Samuel Bowles & Yongjin Park, 2004. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2004-14, University of Massachusetts Amherst, Department of Economics.
  11. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(9), pages 1489-1501, September.
  12. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
  13. Thomas I. Palley, 2002. "Economic contradictions coming home to roost? Does the U.S. economy face a long-term aggregate demand generation problem?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 25(1), pages 9-32, January.
  14. Dybvig, Philip H, 1995. "Dusenberry's Ratcheting of Consumption: Optimal Dynamic Consumption and Investment Given Intolerance for Any Decline in Standard of Living," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(2), pages 287-313, April.
  15. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 73(1), pages 163-193.
  16. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 56(3), pages 405-421, March.
  17. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(6), pages 1035-1046, December.
  18. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2009. "Top Incomes in the Long Run of History," NBER Working Papers 15408, National Bureau of Economic Research, Inc.
  19. David Bunting, 1998. "Distributional Basis of Aggregate Consumption," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 20(3), pages 389-413, April.
  20. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 1-39, February.
  21. Mark Setterfield, 2012. "Real Sector Imbalances and the Great Recession," Working Papers, Trinity College, Department of Economics 1201, Trinity College, Department of Economics.
  22. Thomas I. Palley, 2012. "Wealth and wealth distribution in the neo-Kaleckian growth model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 34(3), pages 453-474, April.
  23. Mark Setterfield & Ted Lovejoy, 2006. "Aspirations, bargaining power, and macroeconomic performance," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 29(1), pages 117-148, October.
  24. Annamaria Lusardi & Daniel J. Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," NBER Working Papers 17072, National Bureau of Economic Research, Inc.
  25. Thomas Palley, 2010. "The Relative Permanent Income Theory of Consumption: A Synthetic Keynes-Duesenberry-Friedman Model," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(1), pages 41-56.
  26. David Dequech, 1999. "Expectations and Confidence under Uncertainty," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 21(3), pages 415-430, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mark Setterfield & Yun Kim, 2013. "Debt Servicing, Aggregate Consumption, and Growth," Working Papers, Trinity College, Department of Economics 1316, Trinity College, Department of Economics.
  2. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:elg:ejeepi:v:11:y:2014:i:1:p31-49. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helen Craven).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.