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Consumption Theory

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Author Info
Emilio Fernandez-Corugedo
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
File Format: application/pdf
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Publisher Info
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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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Postal: Threadneedle Street, London, EC2R 8AH
Web page: http://www.bankofengland.co.uk/education/ccbs/
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Related research
Keywords: Consumption Theory;

References listed on IDEAS
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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November. [Downloadable!] (restricted)
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  2. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-92, July. [Downloadable!] (restricted)
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  3. 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)
  4. John H. Cochrane, 1989. "The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives," NBER Working Papers 2730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January. [Downloadable!] (restricted)
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  6. Caballero, Ricardo J, 1994. "Notes on the Theory and Evidence on Aggregate Purchases of Durable Goods," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 107-17, Summer.
  7. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer. [Downloadable!] (restricted)
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  8. Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June. [Downloadable!] (restricted)
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  9. 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)
  10. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  11. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc. [Downloadable!]
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  12. Christopher D Carroll, . "Precautionary Saving and the Marginal Propensity To Consume Out of Permanent Income," Economics Working Paper Archive 445, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  13. Allen, Todd W. & Carroll, Christopher D., 2001. "Individual Learning About Consumption," Macroeconomic Dynamics, Cambridge University Press, vol. 5(02), pages 255-271, April. [Downloadable!]
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  14. Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June. [Downloadable!] (restricted)
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  15. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Pischke, Jorn-Steffen, 1995. "Individual Income, Incomplete Information, and Aggregate Consumption," Econometrica, Econometric Society, vol. 63(4), pages 805-40, July. [Downloadable!] (restricted)
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  18. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
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  19. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February. [Downloadable!] (restricted)
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  20. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
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  21. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December. [Downloadable!] (restricted)
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  22. Christopher D Carroll & Wendy E Dunn, 1997. "Unemployment Expectations Jumping (Ss) Triggers and Household Balance Sheets," Economics Working Paper Archive 386, The Johns Hopkins University,Department of Economics.
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  23. Franco Modigliani, 1949. "Part V: Fluctuations in the Saving-Income Ratio: A Problem in Economic Forecasting," NBER Chapters, in: Studies in Income and Wealth, pages 369-444 National Bureau of Economic Research, Inc. [Downloadable!]
  24. Clarida, Richard H, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 851-67, August. [Downloadable!] (restricted)
  25. Caballero, Ricardo J, 1993. "Durable Goods: An Explanation for Their Slow Adjustment," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 351-84, April. [Downloadable!] (restricted)
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  26. 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(1992-2), pages 61-156. [Downloadable!]
  27. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  28. Clarida, R.H., 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," Discussion Papers 1991_14, Columbia University, Department of Economics.
  29. Caballero, Ricardo J, 1995. "Near-Rationality, Heterogeneity, and Aggregate Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 29-48, February. [Downloadable!] (restricted)
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  30. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  31. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June. [Downloadable!] (restricted)
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  32. Caballero, Ricardo J, 1990. "Expenditure on Durable Goods: A Case for Slow Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 727-43, August. [Downloadable!] (restricted)
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  33. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  34. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  35. repec:fth:harver:1435 is not listed on IDEAS
  36. Christopher D Carroll, 2000. "Solving Consumption Models with Multiplicative Habits," Economics Working Paper Archive 421, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  37. Jonathan A. Parker, 1999. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Working Papers 7238, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  38. Borooah, V K & Sharpe, D R, 1986. "Aggregate Consumption and the Distribution of Income in the United Kingdom: An Econometric Analysis," Economic Journal, Royal Economic Society, vol. 96(382), pages 449-66, June. [Downloadable!] (restricted)
  39. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  40. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June. [Downloadable!] (restricted)
  41. 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. [Downloadable!] (restricted)
  42. 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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