Consumption Growth, Income Growth and Earings Uncertainty: Simple Cross-Country Evidence
The Consumption growth/income growth parallel found in the low frequency cross Country aggregate data has been interpreted as evidence against the certainty equivalence life-cycle/permanent income hypothesis. This paper analyzes existence of precautionary premia in consumption growth as a potential source of the parallel, and tests the hypothesis that countries with inherently larger earning uncertainty show systematically steeper consumption growth paths and higher saving rates. Empirical results indicate a potentially important role of precautionary saving motives in explaining the cross-country differentials in consumption growth and saving rate. However, the presence of precautionary premia is not enough to account for the high correlation between average consumption growth and average income growth across countries. I conclude that the consumption growth/income growth parallel remains as a robust long-run empirical relationship challenging the life-cycle/permanent income hypothesis.
Volume (Year): 13 (1999)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RIEJ20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RIEJ20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christopher D. Carroll & Lawrence H. Summers, 1991.
"Consumption Growth Parallels Income Growth: Some New Evidence,"
in: National Saving and Economic Performance, pages 305-348
National Bureau of Economic Research, Inc.
- Chris Carroll & Lawrence H. Summers, 1989. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Working Papers 3090, National Bureau of Economic Research, Inc.
- Hahm, Joon-Ho, 1998. "Consumption adjustment to real interest rates: Intertemporal substitution revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 293-320, February.
- R. Glenn Hubbard & Kenneth L. Judd, 1985. "Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax," NBER Working Papers 1736, National Bureau of Economic Research, Inc.
- Christopher D. Carroll & Andrew A. Samwick, 1992. "The nature and magnitude of precautionary wealth," Working Paper Series / Economic Activity Section 124, Board of Governors of the Federal Reserve System (U.S.).
- Barro, Robert J, 1991.
"Economic Growth in a Cross Section of Countries,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(2), pages 407-43, May.
- Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
- Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1988.
"The Effects of Fiscal Policies when Incomes Are Uncertain: A Contradiction to Ricardian Equivalence,"
American Economic Review,
American Economic Association, vol. 78(1), pages 14-23, March.
- Martin Feldstein, 1986. "The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence," NBER Working Papers 2062, National Bureau of Economic Research, Inc.
- Sibley, David S., 1975. "Permanent and transitory income effects in a model of optimal consumption with wage income uncertainty," Journal of Economic Theory, Elsevier, vol. 11(1), pages 68-82, August.
- Robert B. Barsky & N. Gregory Mankiw & Stephen P. Zeldes, 1987.
"Ricardian Consumers With Keynesian Propensities,"
NBER Working Papers
1400, National Bureau of Economic Research, Inc.
- Skinner, Jonathan, 1988.
"Risky income, life cycle consumption, and precautionary savings,"
Journal of Monetary Economics,
Elsevier, vol. 22(2), pages 237-255, September.
- Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
- Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992.
"Earnings uncertainty and precautionary saving,"
Journal of Monetary Economics,
Elsevier, vol. 30(2), pages 307-337, November.
- Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers.
- Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
- Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
- 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.
- Stephen Zeldes, .
"Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence,"
Rodney L. White Center for Financial Research Working Papers
20-86, Wharton School Rodney L. White Center for Financial Research.
- Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
- Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-71, September.
- Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:13:y:1999:i:2:p:39-58. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.