The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis
AbstractThis paper examines the sources of stickiness in aggregate consumption growth. We first derive a dynamic consumption equation which nests recent developments in consumption theory: ruleof- thumb consumption, habit formation, non-separabilities between both private consumption and hours worked and private consumption and government consumption, intertemporal substitution effects and precautionary savings. Next, we estimate this dynamic consumption equation for a panel of 15 OECD countries over the period 1972-2007 taking into account endogeneity issues and error cross-sectional dependence. To this end, we develop a generalised method of moments version of the common correlated effects pooled estimator and demonstrate its small sample behaviour using Monte Carlo simulations. The estimation results support the labour-consumption complementarity hypothesis, the rule-of-thumb consumption model and the notion that precautionary savings matter for the aggregate economy
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Bibliographic InfoPaper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 10/654.
Length: 34 pages
Date of creation: May 2010
Date of revision:
Sticky Consumption; Dynamic Panel; Cross-Sectional Dependence;
Other versions of this item:
- Gerdie Everaert & Lorenzo Pozzi, 2010. "The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis," Tinbergen Institute Discussion Papers 10-049/2, Tinbergen Institute, revised 14 Oct 2011.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-11 (All new papers)
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- Yvonne Adema & Lorenzo Pozzi, 2012. "Business Cycle Fluctuations and Private Savings in OECD Countries: A Panel Data Analysis," Tinbergen Institute Discussion Papers 12-144/VI, Tinbergen Institute.
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