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Intertemporal Choice and Consumption Mobility

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Author Info
Tullio Jappelli () (CSEF, Università di Salerno, and CEPR)
Luigi Pistaferri () (Economics Department, Stanford University)

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Abstract

We test the validity of three models of intertemporal consumption choice (the permanent income hypothesis, the myopic model, and the consumption insurance model) by means of mobility indexes for the underlying consumption distribution. Each of the three models delivers different transition laws for the consumption distribution. Estimating the transition laws requires knowledge of the evolution of the entire consumption distribution, not just of the conditional mean of consumption growth as in more standard procedures. We design an appropriate non-parametric test and confront these yet unexplored theoretical predictions with a panel drawn from the Bank of Italy Survey of Household Income and Wealth. We find substantial consumption mobility in the data. We then derive the predictions for consumption mobility of the theories of intertemporal choice and compare them with the actual mobility. The comparison rejects the theory of consumption insurance and the myopic model and is favorable to the permanent income hypothesis once we allow for measurement error in consumption.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 23.

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Date of creation: 01 Oct 1999
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Publication status: Published in Journal of the European Economic Association, March 2006, vol. 4, issue 1, pages 75-115
Handle: RePEc:sef:csefwp:23

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Related research
Keywords: Consumption dynamics; mobility;

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Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
I30 - Health, Education, and Welfare - - Welfare and Poverty - - - General

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References listed on IDEAS
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.:
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  31. Luigi Pistaferri & Tullio Jappelli, 1998. "Using Subjective Income Expectations to Test for Excess Sensitivity of Consumption to Predicted Income Growth," CSEF Working Papers 12, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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Full references

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. Fabien Postel-Vinay & Hélène Turon, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," The Centre for Market and Public Organisation 05/121, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  2. Christopher D Carroll, . "Precautionary Saving and the Marginal Propensity To Consume Out of Permanent Income," Economics Working Paper Archive 445, The Johns Hopkins University,Department of Economics. [Downloadable!]
    Other versions:
  3. Alexander Karaivanov, 2003. "Financial Contracts and Occupational Choice," Computing in Economics and Finance 2003 25, Society for Computational Economics. [Downloadable!]
  4. José María Casado García, 2008. "From Income to Consumption: Measuring Households Partial Insurance," Working Papers 2008-09, FEDEA. [Downloadable!]
  5. Hans Hoogeveen, 2001. "Evidence on Informal Insurance in Rural Zimbabwe," Tinbergen Institute Discussion Papers 01-001/2, Tinbergen Institute. [Downloadable!]
  6. Sanghamitra Bandyopadhyay & Frank Cowell, 2007. "Modelling Vulnerability in the UK," Economics Series Working Papers 313, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  7. Denis Conniffe & Donal O’Neill, 2008. "An Efficient Estimator for Dealing with Missing Data on Explanatory Variables in a Probit Choice Model," Economics, Finance and Accounting Department Working Paper Series n1960908.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
  8. Miguel Székely & Orazio P. Attanasio, 2001. "Sacudidas salariales y variabilidad del consumo en México durante los años 90," RES Working Papers 4266, Inter-American Development Bank, Research Department. [Downloadable!]
  9. Richard Blundell & Luigi Pistaferri & Ian Preston, 2002. "Partial insurance, information and consumption dynamics," IFS Working Papers W02/16, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  10. Miguel Székely & Orazio P. Attanasio, 2001. "Wage Shocks and Consumption Variability in Mexico during the 1990s," RES Working Papers 4265, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  11. Conniffe, Denis & O'Neill, Donal, 2009. "Efficient Probit Estimation with Partially Missing Covariates," IZA Discussion Papers 4081, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Christopher D. Carroll, 2000. "Requiem for the Representative Consumer? Aggregate Implications of Microeconomic Consumption Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 110-115, May. [Downloadable!] (restricted)
    Other versions:
  13. repec:bep:eaptop:v:6:y:2006:i:1:p:1474-1474 is not listed on IDEAS
  14. Tullio Jappelli & Mario Padula & Luigi Pistaferri, 2005. "A Direct Test of the Buffer-Stock Model of Saving," CSEF Working Papers 150, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
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