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Consumption Patterns over Pay Periods

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Author Info
Kelly, Clare (University College Dublin)
Gauthier Lanot (Keele University)

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Abstract

This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions at frequent points during that period, when there is uncertainty with respect to prices and imperfect credit markets. We simulate the numerical solution to this model and find that optimal consumption is u-shaped over the pay period. We apply the model to weekly expenditure data from the FES to estimate the coefficient of relative risk aversion (preliminary point estimates are around 6) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 112.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:112

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  13. Harmon, Colm & Walker, Ian, 1995. "Estimates of the Economic Return to Schooling for the United Kingdom," American Economic Review, American Economic Association, vol. 85(5), pages 1278-86, December. [Downloadable!] (restricted)
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  16. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January. [Downloadable!] (restricted)
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  17. repec:fth:pennfi:69 is not listed on IDEAS
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  22. Banks, James & Blundell, Richard & Brugiavini, Agar, 2001. "Risk Pooling, Precautionary Saving and Consumption Growth," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 757-79, October.
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  23. Robert E. Hall & Frederic S. Mishkin, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March. [Downloadable!] (restricted)
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  25. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  26. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier. [Downloadable!] (restricted)
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  31. Chambers, Marcus J & Bailey, Roy E, 1996. "A Theory of Commodity Price Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 924-57, October. [Downloadable!] (restricted)
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  32. Lusardi, Annamaria, 1996. "Permanent Income, Current Income, and Consumption: Evidence from Two Panel Data Sets," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 81-90, January.
  33. Sydney Ludvigson, 1999. "Consumption And Credit: A Model Of Time-Varying Liquidity Constraints," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 434-447, August. [Downloadable!] (restricted)
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  34. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December. [Downloadable!] (restricted)
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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. Emre Ozdenoren & Stephen Salant & Dan Silverman, 2006. "Willpower and the Optimal Control of Visceral Urges," Economics Working Papers 0069, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  2. Kelly, Clare & Lanot, Gauthier, 2003. "Analytical Results For A Model Of Periodic Consumption," The Warwick Economics Research Paper Series (TWERPS) 673, University of Warwick, Department of Economics. [Downloadable!]
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  3. Emre Ozdenoren & Stephen Salant & Dan Silverman, 2006. "Willpower and Optimal Control of Visceral Urges," Levine's Working Paper Archive 122247000000001355, David K. Levine. [Downloadable!]
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