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The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis

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Author Info

  • Gerdie Everaert

    (SHERPPA, Ghent University)

  • Lorenzo Pozzi

    (Department of Economics, Erasmus University Rotterdam)

Abstract

This paper examines the sources of stickiness in aggregate consumption growth. We first derive a dynamic consumption equation which encompasses many recent developments in consumption theory: habit formation, intertemporal substitution effects, consumption based on current income, and non-separabilities between private consumption and both hours worked and government consumption.Next, we estimate this dynamic consumption equation for a panel of 15 OECD countries over the period 1972-2007 taking into account endogeneity issues and error cross-sectional dependence. To this end, we develop a generalised method of moments version of the common correlated effects pooled estimator and demonstrate its small sample behaviour using Monte Carlo simulations. The estimation results support the labour-consumption complementarity hypothesis but not the other forms of stickiness.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-049/2.

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Date of creation: 12 May 2010
Date of revision: 14 Oct 2011
Handle: RePEc:dgr:uvatin:20100049

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Web page: http://www.tinbergen.nl

Related research

Keywords: Sticky Consumption; Dynamic Panel; Cross-Sectional Dependence;

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Cited by:
  1. Yvonne Adema & Lorenzo Pozzi, 2012. "Business Cycle Fluctuations and Private Savings in OECD Countries: A Panel Data Analysis," Tinbergen Institute Discussion Papers 12-144/VI, Tinbergen Institute.

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