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An empirical study of the 'rule of thumb' consumption model in five East Asian countries

  • Yih-Luan Chyi
  • Chao-Hsi Huang

We investigate Campbell and Mankiw's 'rule of thumb' consumption model using data from five East Asian countries. We find that the fraction of income attributed to the 'rule of thumb' consumers are generally substantial for these countries. In particular, the fractions for them are generally higher than those of OECD countries found in previous studies. Furthermore, the estimates of the fractions are robust to variant specifications of the 'rule of thumb' consumption model. These results are favourable to he 'liquidity constraint' justification of the 'rule of thump' consumption model.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 29 (1997)
Issue (Month): 10 ()
Pages: 1271-1282

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Handle: RePEc:taf:applec:v:29:y:1997:i:10:p:1271-1282
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  1. A. Abel, 2010. "Asset prices under habit formation and catching up with the Jones," Levine's Working Paper Archive 1395, David K. Levine.
  2. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  3. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
  4. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  5. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
  6. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  7. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  8. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
  9. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
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