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International evidence on sticky consumption growth

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Author Info
Christopher D. Carroll () (Johns Hopkins University, Department of Economics, 440 Mergenthaler Hall 3400 N. Charles Street, Baltimore, MD 21218, USA.)
Jiri Slacalek () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Martin Sommer () (International Monetary Fund, 700 19th Street, N.W., Washington, D.C. 20431, USA.)

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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 autocorrelation, 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: E21, F41.

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Paper provided by European Central Bank in its series Working Paper Series with number 886.

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Length: 39 pages
Date of creation: Mar 2008
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Handle: RePEc:ecb:ecbwps:20080886

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Related research
Keywords: Sticky Expectations Consumption Dynamics Habit Formation.

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This page was last updated on 2008-9-24.

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