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Reexamining loss aversion in aggregate consumption - Swedish and international evidence

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  • Johansson, Martin W

    (Department of Economics, Lund University)

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    Abstract

    Recent empirical and theoretical studies have suggested that consumption growth reacts asymmetrically to positive and negative expected income growth. In this paper we investigate if this behavior is robust to a) assumptions on how the households form their expectations of future earnings and b) sampling frequency. After investigating the case for Swedish consumption using survey data and a panel of annual observations on 15 OECD countries we conclude that previous results can not easily be generalized

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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP02_2.pdf
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    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 2002:2.

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    Length: 26 pages
    Date of creation: 04 Feb 2002
    Date of revision:
    Handle: RePEc:hhs:lunewp:2002_002

    Contact details of provider:
    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
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    Related research

    Keywords: Permanent income hypothesis; Propsect theory; Loss aversion; Survey data;

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    1. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    2. Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999. "Loss aversion in a consumption-savings model," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 155-178, February.
    3. Wilson, Bradley K., 1998. "The Aggregate Existence of Precautionary Saving: Time-Series Evidence from Expenditures on Nondurable and Durable Goods," Journal of Macroeconomics, Elsevier, Elsevier, vol. 20(2), pages 309-323, April.
    4. Agell, J. & Berg, L. & Edin, P.A., 1995. "Tax Reform, Consumption and Asset Structure," Papers, Uppsala - Working Paper Series 16, Uppsala - Working Paper Series.
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    6. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
    7. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
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    9. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
    10. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    11. Berg, L. & Bergstrom, R., 1993. "Consumption, Income, Wealth and Household Debt - n Econometric Analysis of the Swedish Experience 1970- 1992," Papers, Uppsala - Working Paper Series 1993-12, Uppsala - Working Paper Series.
    12. Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers, Columbia University, Department of Economics 1988_05, Columbia University, Department of Economics.
    13. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
    14. Acemoglu, Daron & Scott, Andrew, 1994. "Consumer Confidence and Rational Expectations: Are Agents' Beliefs Consistent with the Theory?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(422), pages 1-19, January.
    15. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
    16. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
    17. Elwood, S Kirk, 1998. "Testing for Excess Sensitivity in Consumption: A State-Space/Unobserved Components Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(1), pages 64-82, February.
    18. Shlomo Benartzi & Richard H. Thaler, 1993. "Myopic Loss Aversion and the Equity Premium Puzzle," NBER Working Papers 4369, National Bureau of Economic Research, Inc.
    19. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288244, October.
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