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What explains consumption and money holding in the very short-run?: evidence from checking account data

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  • Marc Anthony Fusaro
  • Donald H. Dutkowsky

Abstract

This article investigates consumption and money-holding behaviour within an intertemporal optimization model of the individual household. Our data set consists of deposits and withdrawals from individual household checking accounts that received pay cheques by direct deposit. We construct samples of panel data for households with weekly, biweekly and semi-monthly pay periods and form two different measures of consumption. Generalized Method of Moments estimates of structural parameters provide limited evidence for habit formation or durability. The results indicate small but positive marginal utility of money within a well-behaved utility function, with ‘rule of thumb’ consumption a close approximation. These findings are uniform for sub-samples split according to household age or income.

Suggested Citation

  • Marc Anthony Fusaro & Donald H. Dutkowsky, 2013. "What explains consumption and money holding in the very short-run?: evidence from checking account data," Applied Economics Letters, Taylor & Francis Journals, vol. 20(13), pages 1228-1232, September.
  • Handle: RePEc:taf:apeclt:v:20:y:2013:i:13:p:1228-1232
    DOI: 10.1080/13504851.2013.799749
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    File URL: http://hdl.handle.net/10.1080/13504851.2013.799749
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    Cited by:

    1. Steinar Holden, 2012. "Implications of insights from behavioral economics for macroeconomic models," IMK Working Paper 99-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral economics and macroeconomic models," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 133-147.
    3. Michael Cohen & Marc Rysman, 2012. "Payment choice with consumer panel data," Working Papers 13, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.

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