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Determinants of private consumption

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  • A. Bayar
  • K. Mc Morrow
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    Abstract

    This paper looks at the evolution of consumption theory over time and critically examines the widely accepted permanent income / life cycle hypotheses concerning consumer behaviour in terms of the empirical evidence. Attention is also devoted to the role of time horizon, time preference and capital market imperfections in determining the consumption / savings split of individual consumers. The paper points out the forecasting inadequacies of an essentially Keynesian framework due to its insufficient attention to expectations and forward looking behaviour. The likely key influences on consumption trends in the Community over the medium to long run are examined including the reaction of consumption to both ongoing budgetary consolidation and financial liberalisation, the impact of taxation and social welfare reforms and finally the effect of demographic changes.

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    File URL: http://ec.europa.eu/economy_finance/publications/publication11175_en.pdf
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    Bibliographic Info

    Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 135.

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    Length: 32 pages
    Date of creation: May 1999
    Date of revision:
    Handle: RePEc:euf:ecopap:0135

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    Keywords: consumption; consumers;

    References

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    1. Jappelli, Tullio & Pistaferri, Luigi, 2000. "Using subjective income expectations to test for excess sensitivity of consumption to predicted income growth," European Economic Review, Elsevier, vol. 44(2), pages 337-358, February.
    2. Miles, David, 1999. "Modelling the Impact of Demographic Change upon the Economy," Economic Journal, Royal Economic Society, vol. 109(452), pages 1-36, January.
    3. Tim Callen & Christian Thimann, 1997. "Empirical Determinants of Household Saving," IMF Working Papers 97/181, International Monetary Fund.
    4. John Y. Campbell, 1996. "Consumption and the Stock Market: Interpreting International Experience," NBER Working Papers 5610, National Bureau of Economic Research, Inc.
    5. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
    6. Bayoumi, Tamim, 1995. "Explaining Consumption: A Simple Test of Alternative Hypotheses," CEPR Discussion Papers 1289, C.E.P.R. Discussion Papers.
    7. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
    8. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
    9. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," World Bank Economic Review, World Bank Group, vol. 12(3), pages 483-501, September.
    10. 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.
    11. Carruth, Alan & Henley, Andrew, 1990. "Can Existing Consumption Functions Forecast Consumer Spending in the Late 1980's?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 211-22, May.
    12. Richard Kohl & Paul O'Brien, 1998. "The Macroeconomics of Ageing, Pensions and Savings: A Survey," OECD Economics Department Working Papers 200, OECD Publishing.
    13. Scott, Andrew, 1996. "Consumption, 'Credit Crunches' and Financial Deregulation," CEPR Discussion Papers 1389, C.E.P.R. Discussion Papers.
    14. Tamim Bayoumi, 1997. "Explaining Consumption," IMF Working Papers 97/56, International Monetary Fund.
    15. Mark Gertler, 1997. "Government Debt and Social Security in a Life-Cycle Economy," NBER Working Papers 6000, National Bureau of Economic Research, Inc.
    16. Werner Roeger & Jan in 't Veld, 1997. "QUEST II. A Multi-Country Business Cycle and Growth Model," European Economy - Economic Papers 123, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    17. Steven F. Venti & David A. Wise, 1996. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 5609, National Bureau of Economic Research, Inc.
    18. Adrian Blundell-Wignall & Frank Browne & Stefano Cavaglia, 1991. "Financial Liberalisation and Consumption Behaviour," OECD Economics Department Working Papers 81, OECD Publishing.
    19. Berg, Lennart, 1994. "Household Savings and Debts: The Experience of the Nordic Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 42-53, Summer.
    20. repec:fth:harver:1435 is not listed on IDEAS
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    Cited by:
    1. N.J. Nahuis, 2000. "Are Survey Indicators Useful for Monitoring Consumption Growth: Evidence from European Countries," MEB Series (discontinued) 2000-8, Netherlands Central Bank, Monetary and Economic Policy Department.
    2. Niek J. Nahuis & W. Jos Jansen, 2003. "Which Survey Indicators Are Useful for Monitoring Consumption? Evidence fron European Countries," Macroeconomics 0309013, EconWPA.
    3. Katja Rietzler, 2005. "Modelling European Business Cycles (EBC Model): A Macroeconometric Model of Spain ; February 2005," Data Documentation 4, DIW Berlin, German Institute for Economic Research.
    4. Jürgen Janger & Claudia Kwapil & Wolfgang Pointner, 2005. "The Determinants of Consumption Growth in Austria – Results of a Representative Survey," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 48–65.

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