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

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  • Yih-Luan Chyi
  • Chao-Hsi Huang

Abstract

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.

Suggested Citation

  • Yih-Luan Chyi & Chao-Hsi Huang, 1997. "An empirical study of the 'rule of thumb' consumption model in five East Asian countries," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1271-1282.
  • Handle: RePEc:taf:applec:v:29:y:1997:i:10:p:1271-1282
    DOI: 10.1080/00036849700000017
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    References listed on IDEAS

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    1. 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 971-987, December.
    2. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    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. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    5. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    6. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
    7. 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.
    8. 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 661-692, December.
    9. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
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    Cited by:

    1. Buffie, Edward F., 2013. "The Taylor principle fights back, Part I," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2771-2795.
    2. Andersson, Fredrik W., 2011. "The lambda model and "rule of thumb" consumers: An estimation problem in existing studies," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 381-384, August.
    3. Zhang, Yin & Wan, Guang Hua, 2002. "Household consumption and monetary policy in China," China Economic Review, Elsevier, vol. 13(1), pages 27-52.
    4. Kazuo Ogawa, 2007. "Why did Japan's household savings rate fall in the 1990s?," Applied Economics, Taylor & Francis Journals, vol. 39(18), pages 2341-2353.
    5. Yoshitsugu Kitazawa & Makoto Ohta, 2005. "PIH and ROT alternative in view of the intertemporal non-separability of preferences: empirical findings from a Japanese panel data," Discussion Papers 25, Kyushu Sangyo University, Faculty of Economics.
    6. Yin Zhang & Guang Hua Wan, 2004. "Liquidity constraint, uncertainty and household consumption in China," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2221-2229.

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