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Consumption Theory

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  • Emilio Fernandez-Corugedo
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    Abstract

    There is no doubt that aggregate consumption is a key variable for policy makers. The aim of this handbook is to familiarise the reader with the key theories that have been used to model and forecast consumption and draw out their implications for policy analysis. This handbook is intended to be accessible to those working in policy-related departments without losing economic rigour. Important concepts are highlighted in a series of four boxes and technical details in four appendices. The handbook pays particular attention to the role of forward-looking agents and their reaction to policy announcements; the role of interest rates in consumption and the role of other variables thought to affect consumption behaviour such as taxes, the structure of both the banking system and the stock market, age and wealth distributions and the volatility of economic variables. Unfortunately, different consumption theories can lead to different policy prescriptions and as such a clear message arises from this handbook: there is no single consumption theory that can explain consumption behaviour in all economies; economists must therefore investigate what they think explains consumption in their country.

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    File URL: http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb23.pdf
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    Bibliographic Info

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    This book is provided by Centre for Central Banking Studies, Bank of England in its series Handbooks with number 23 and published in 2004.

    ISBN: 1 85730 143 9
    Handle: RePEc:ccb:hbooks:23

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    Web page: http://www.bankofengland.co.uk/education/Pages/ccbs/default.aspx
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    Keywords: Consumption Theory;

    References

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    40. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
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    42. Christopher Carroll, 2002. "'Risky Habits' and the Marginal Propensity to Consume Out Of Permanent Income," Computing in Economics and Finance 2002 42, Society for Computational Economics.
    43. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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    46. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
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