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Excess Smoothness and Durable Goods: Evidence from Subjective Expectations Data

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This paper derives and estimates a model where durable and non-durable consumption are allowed to be non-separable in utility and individuals face a convex adjustment cost whenever they want to purchase a new durable good. Subjective expectations data allow to identify and estimate the marginal propensity to consume out of permanent shocks, which is a key parameter for the understanding of the excess smoothness puzzle and for policy purposes.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 38.

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Date of creation: 01 Mar 2000
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Handle: RePEc:sef:csefwp:38

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Keywords: Durable Goods; Intertemporal Substitution; Excess Smoothness; Subjective Expectations;

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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November.
  2. Pischke, Jörn-Steffen, 1991. "Individual income, incomplete information, and aggregate consumption," ZEW Discussion Papers 91-07, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Quah, Danny, 1990. "Permanent and Transitory Movements in Labor Income: An Explanation for "Excess Smoothness" in Consumption," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 449-75, June.
  4. Hayashi, Fumio, 1985. "The Effect of Liquidity Constraints on Consumption: A Cross-sectional Analysis," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 183-206, February.
  5. Brandolini, A., 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Date Quality, and the Time Pattern of Income Inequality," Papers 350, Banca Italia - Servizio di Studi.
  6. 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.
  7. Marvin Goodfriend, 1991. "Information-aggregation bias," Working Paper 91-06, Federal Reserve Bank of Richmond.
  8. Luigi Pistaferri, 1998. "Superior Information, Income Shocks and the Permanent Income Hypothesis," CSEF Working Papers 07, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
  10. Tomaso Duso, 1999. "Complete Markets in Italy: An Analysis on Micro Data," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(1), pages 1-25, April.
  11. Brugiavini, A. & Weber, G., 1992. "Durables and Nondurables Consumption: Edidence from Italian Household Data," Papers 184, Banca Italia - Servizio di Studi.
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