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The Effect of Current Income on Aggregate Consumption

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Author Info
Manisha Chakrabarty (University of Bonn)
Anke Schmalenbach (University of Bonn)

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Abstract

Using the statistical distributional approach of aggregation by Hildenbrand and Kneip (1999, 2002), this paper attempts to find out to what extent current labour income can explain the relative change in aggregate consumption expenditure. The coefficients of the changes in the income distribution are estimated as an average derivative of the cross-section Engel curve. We use the UK-FES [1974-1993] to estimate these coefficients separately for each year by a nonparametric estimation procedure. It is found that the change in current labour income plays a significant role for the commodity groups services and total nondurable, thereby contradicting the implications of the traditional life-cycle/permanent income hypothesis. For services the inclusion of dispersion in addition to the mean of the income distribution improves the goodness-of-fit of the model.

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File URL: http://www.esr.ie/Vol33_3Chakrabart.pdf
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File Function: First version, 2002
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Publisher Info
Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 33 (2002)
Issue (Month): 3 ()
Pages: 297-317
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eso:journl:v:33:y:2002:i:3:p:297-317

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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.:

  1. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 631-49, July. [Downloadable!] (restricted)
  2. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May. [Downloadable!] (restricted)
  3. Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-37, December. [Downloadable!] (restricted)
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  4. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March. [Downloadable!] (restricted)
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  5. Hildenbrand, Werner, 1998. "How relevant are specifications of behavioral relations on the micro-level for modelling the time path of population aggregates?," European Economic Review, Elsevier, vol. 42(3-5), pages 437-458, May. [Downloadable!] (restricted)
  6. repec:fth:harver:1466 is not listed on IDEAS
  7. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Manisha Chakrabarty & Anke Schmalenbach & Jeffrey Racine, 2004. "On the Distributional Effects of Income in an Aggregate Consumption Relation," Keele Economics Research Papers KERP 2004/09, Centre for Economic Research, Keele University. [Downloadable!]
    Other versions:
  2. Ashok S. Guha & Brishti Guha, 2008. "Target Saving In An Overlapping Generations Model," Working Papers 01-2008, Singapore Management University, School of Economics. [Downloadable!]
  3. Jürgen Arns & Kaushik Bhattacharya, 2005. "Modelling Aggregate Consumption Growth with Time-Varying Parameters," Bonn Econ Discussion Papers bgse15_2005, University of Bonn, Germany. [Downloadable!]
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