The following question is analyzed: under what circumstances can one a stable (i.e., time invariant) functional relationship which links aggregate consumption in period t with aggregate income in period t and another "determinants" of consumtion that refer to periods prior to period t and can be derived from observable distributions of households' characteristics ? The basic hypothesis on which our model is built is the hypothes of a "structurally stable" evolution. This hypothesis has good empirical support. The proposed dynamic model of consumer's expenditure implies implies the observed regularities of aggregate consumption and income data such as the high linear association of aggregate income and consumption for short-run time series. The compatibility of our model with empirical data and its predictive power is discussed using time- series of cross-section data, the U.K. Family Expenditure Survey from 1968 to 84.
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number
456.
Length: 40 pages plus pictures Date of creation: Oct 1994 Date of revision: Handle: RePEc:bon:bonsfa:456
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Find related papers by JEL classification: B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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