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Defining Consumption Behavior in a Multi-Country Model

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Author Info
Olivier Allais
Loic Cadiou
Stephane Dees

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Abstract

This paper presents the consumption function of Marmotte, the multi-country model of the CEPII-CEPREMAP, and its estimation for the 17 countries of the model. The consumption function is based on the permanent income model. We have extended this model to account for the presence of habit formation and liquidity constraints in the consumption behaviors. The results obtained give us reasonable values for the consumption function of Marmotte. Differences across the 17 countries concern only the habit behaviors. However, these differences are not large enough to imply significant differences in terms of consumption responses to shocks in the simulations of the model.

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Paper provided by CEPII research center in its series Working Papers with number 2001-02.

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Date of creation: Feb 2001
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Handle: RePEc:cii:cepidt:2001-02

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Related research
Keywords: Consumption; habit formation; liquidity constraints; generalized method of moments;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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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.:
  1. 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)
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  3. Bronka Rzepkowski, 2001. "Pouvoir predictif de la volatilite implicite dans le prix des options de change," Working Papers 2001-01, CEPII research center. [Downloadable!]
  4. Sefton, J A & In't Veld, J W, 1999. "Consumption and Wealth: An International Comparison," Manchester School, University of Manchester, vol. 67(4), pages 525-44, September. [Downloadable!] (restricted)
  5. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
    Other versions:
  6. 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!]
    Other versions:
  7. 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)
  8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
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  10. 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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  11. Stephanie Guichard & Jean-Pierre Laffargue, 2000. "The Wage Curve: The Lessons of an Estimation over a Panel of Countries," Working Papers 2000-21, CEPII research center. [Downloadable!]
  12. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  13. Campbell, John Y & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Review of Economic Studies, Blackwell Publishing, vol. 56(3), pages 357-73, July. [Downloadable!] (restricted)
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  16. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November. [Downloadable!] (restricted)
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  17. repec:fth:harver:1435 is not listed on IDEAS
  18. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  19. Olivier Allais & Loic Cadiou & Stephane Dees, 2000. "Consumption Habit and Equity Premium in the G7 Countries," Working Papers 2000-19, CEPII research center. [Downloadable!]
  20. Patterson, Kerry D & Pesaran, Bahram, 1992. "The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 573-84, November. [Downloadable!] (restricted)
  21. 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)
  22. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
  23. 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)
Full references

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. French-German Economic Forum, 2001. "EU-Labour Markets / Pension Reforms between Economic and Political Problems," Working Papers 2001-05, CEPII research center. [Downloadable!]
  2. Loic Cadiou & Julien Genet & Jean-Louis Guerin, 2002. "Evolutions demographiques et marche du travail : des liens complexes parfois contradictoires," Working Papers 2002-16, CEPII research center. [Downloadable!]
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