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International evidence on sticky consumption growth

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  • Carroll, Christopher D.
  • Slacalek, Jiri
  • Sommer, Martin

Abstract

We estimate the degree of ‘stickiness’ in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of auto-correlation, with a stickiness parameter of about 0.7 on average across countries. The sticky-consumption-growth model outperforms the random walk model of Hall (1978), and typically fits the data better than the popular Campbell and Mankiw (1989) model. In several countries, the sticky-consumption-growth and Campbell–Mankiw models work about equally well. JEL Classification: C6, D9, E2

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Paper provided by European Central Bank in its series Working Paper Series with number 0886.

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Date of creation: Mar 2008
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Handle: RePEc:ecb:ecbwps:20080886

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Keywords: Consumption Dynamics; Habit Formation; Sticky Expectations;

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Citations

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Cited by:
  1. Jonathan A. Parker & Nicholas S. Souleles & Christopher D. Carroll, 2014. "The Benefits of Panel Data in Consumer Expenditure Surveys," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  2. Tuomas A. Peltonen & Ricardo M. Sousa & Isabel S. Vansteenkiste, 2009. "Wealth Effects in Emerging Market Economies," NIPE Working Papers 4/2009, NIPE - Universidade do Minho.
  3. Saten Kumar & Barrett Owen, 2013. "Financial Crisis and Sticky Expectations," Working Papers 2013-05, Auckland University of Technology, Department of Economics.
  4. Ortiz, Marco, 2013. "Learning Through the Yield Curve," Working Papers 2013-018, Banco Central de Reserva del Perú.
  5. Hall, Jamie, 2012. "Consumption dynamics in general equilibrium," MPRA Paper 43933, University Library of Munich, Germany.
  6. Andreas Fuster & Benjamin Hebert & David Laibson, 2012. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 1 - 48.
  7. Bartosz Mackowiak & Mirko Wiederholt, 2008. "Business Cycle Dynamics under Rational Inattention," 2008 Meeting Papers 1059, Society for Economic Dynamics.
  8. Liu, Yaqin & Ferreira, Susana & Colson, Gregory & Wetzstein, Michael, 2013. "Obesity and Counseling," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149947, Agricultural and Applied Economics Association.
  9. Jiri Slacalek, 2006. "International Wealth Effects," Computing in Economics and Finance 2006 425, Society for Computational Economics.
  10. Carroll, Christopher D. & Slacalek, Jirka, 2009. "The American consumer: Reforming, or just resting?," CFS Working Paper Series 2009/12, Center for Financial Studies (CFS).
  11. Schubert, Stefan Franz, 2009. "Dynamic Effects of Oil Price Shocks and their Impact on the Current Account," MPRA Paper 16738, University Library of Munich, Germany.
  12. Jon Faust & Abhishek Gupta, 2012. "Posterior Predictive Analysis for Evaluating DSGE Models," NBER Working Papers 17906, National Bureau of Economic Research, Inc.
  13. Georg Fahrenschon & Clemens Fuest & Ralph Brügelmann & Willi Diez, 2009. "Konsumgutscheine, Steuer- und Zinssenkungen, Hilfspaket für die Automobilbranche: Sind das geeignete Mittel gegen die Rezession?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 62(01), pages 03-15, 01.
  14. Liping Gao & Hyeongwoo Kim & Yaoqi Zhang, 2013. "Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China," Auburn Economics Working Paper Series auwp2013-05, Department of Economics, Auburn University.

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