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Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say 'Probably Not'

Author

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  • Tomas Havranek

    (Czech National Bank)

  • Anna Sokolova

    (University of Nevada-Reno)

Abstract

We show that three factors combine to explain the mean magnitude of excess sensitivity reported in studies estimating the consumption response to income changes: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and households under examination have substantial liquidity, the literature implies little evidence of deviations from consumption smoothing. The result holds when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates produced by this literature are also systematically affected by the size of the change in income and the chosen measure of consumption. (Copyright: Elsevier)

Suggested Citation

  • Tomas Havranek & Anna Sokolova, . "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say 'Probably Not'," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  • Handle: RePEc:red:issued:18-255
    DOI: 10.1016/j.red.2019.05.004
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    Keywords

    Excess sensitivity; Marginal propensity to consume; Rule-of-thumb consumers; Liquidity constraints; Publication bias;

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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