IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v93y2011i4p1135-1145.html
   My bibliography  Save this article

International Evidence on Sticky Consumption Growth

Author

Listed:
  • Christopher D. Carroll

    (Johns Hopkins University)

  • Jiri Slacalek

    (European Central Bank)

  • Martin Sommer

    (International Monetary Fund)

Abstract

This paper estimates the degree of stickiness in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness parameter of about 0.7 on average across countries. The sticky consumption growth model outperforms the random walk model of Hall (1978) and typically fits the data better than the popular Mankiw (1989) model, though in a few countries, the sticky consumption growth and Campbell-Mankiw models work about equally well. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Christopher D. Carroll & Jiri Slacalek & Martin Sommer, 2011. "International Evidence on Sticky Consumption Growth," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1135-1145, November.
    • Handle: RePEc:tpr:restat:v:93:y:2011:i:4:p:1135-1145
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00122
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    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. Roberto Golinelli & Giuseppe Parigi, 2004. "Consumer Sentiment and Economic Activity: A Cross Country Comparison," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2004(2), pages 147-170.
    3. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    4. Pischke, Jorn-Steffen, 1995. "Individual Income, Incomplete Information, and Aggregate Consumption," Econometrica, Econometric Society, vol. 63(4), pages 805-840, July.
    5. John Campbell & Angus Deaton, 1989. "Why is Consumption So Smooth?," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 357-373.
    6. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    7. John Muellbauer, 1988. "Habits, Rationality and Myopia in the Life Cycle Consumption Function," Annals of Economics and Statistics, GENES, issue 9, pages 47-70.
    8. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
    9. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    10. 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.
    11. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    12. Martin Lettau & Sydney Ludvigson, 2001. "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 815-849, June.
    13. repec:fth:harver:1435 is not listed on IDEAS
    14. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
    15. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August.
    16. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    17. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    18. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    19. Marco Del Negro & Frank Schorfheide, 2004. "Priors from General Equilibrium Models for VARS," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 643-673, May.
    20. Ireland, Peter N., 2004. "A method for taking models to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1205-1226, March.
    21. International Monetary Fund, 2006. "Niger: Report on the Observance of Standards and Codes—Data Module, Response by the Authorities, Detailed Assessments Using the Data Quality Assessment Framework (DQAF)," IMF Staff Country Reports 2006/236, International Monetary Fund.
    22. International Monetary Fund, 2006. "Panama: Report on the Observance of Standards and Codes—Data Module; Response by the Authorities; and Detailed Assessments Using the Data Quality Assessment Framework," IMF Staff Country Reports 2006/387, International Monetary Fund.
    23. Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
    24. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
    25. International Monetary Fund, 2006. "Albania: Report on the Observance of Standards and Codes—Data Module, Response by the Authorities, and Detailed Assessments Using the Data Quality Assessment Framework," IMF Staff Country Reports 2006/393, International Monetary Fund.
    26. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, June.
    27. International Monetary Fund, 2006. "Thailand: Report on the Observance of Standards and Codes: Data Module, Response by the Authorities, Detailed Assessments Using the Data Quality Assessment Framework (DQAF)," IMF Staff Country Reports 2006/140, International Monetary Fund.
    28. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    29. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
    30. Sydney C. Ludvigson & Alexander Michaelides, 2001. "Does Buffer-Stock Saving Explain the Smoothness and Excess Sensitivity of Consumption?," American Economic Review, American Economic Association, vol. 91(3), pages 631-647, June.
    31. 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.
    32. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
    33. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
    34. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    35. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    36. International Monetary Fund, 2006. "Uganda: Report on the Observance of Standards and Codes: Data Module, Response by the Authorities, and Detailed Assessment Using the Data Quality Assessment Framework," IMF Staff Country Reports 2006/269, International Monetary Fund.
    37. Wilcox, David W, 1992. "The Construction of U.S. Consumption Data: Some Facts and Their Implications for Empirical Work," American Economic Review, American Economic Association, vol. 82(4), pages 922-941, September.
    38. 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.
    39. Sommer Martin, 2007. "Habit Formation and Aggregate Consumption Dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-25, August.
    40. 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.
    41. Pietro Catte & Nathalie Girouard & Robert Price & Christophe André, 2004. "Housing Markets, Wealth and the Business Cycle," OECD Economics Department Working Papers 394, OECD Publishing.
    42. Gruber, Joseph W., 2004. "A present value test of habits and the current account," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1495-1507, October.
    43. repec:adr:anecst:y:1988:i:9:p:03 is not listed on IDEAS
    44. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
    45. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    46. repec:adr:anecst:y:1988:i:9 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:cfswop:wp200809 is not listed on IDEAS
    2. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    3. Daria Pignalosa, 2021. "The Euler Equation Approach: Critical Implications of Recent Developments in the Theory of Intertemporal Choice," Bulletin of Political Economy, Bulletin of Political Economy, vol. 15(1), pages 1-43, June.
    4. Choi, Kyoung Jin & Jeon, Junkee & Koo, Hyeng Keun, 2022. "Intertemporal preference with loss aversion: Consumption and risk-attitude," Journal of Economic Theory, Elsevier, vol. 200(C).
    5. Martin Sommer & Christopher Carroll, 2004. "Epidemiological expectations and consumption dynamics," Money Macro and Finance (MMF) Research Group Conference 2003 92, Money Macro and Finance Research Group.
    6. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    7. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    8. Melisso Boschi & Stefano d'Addona & Aditya Goenka, 2009. "Testing Habits In An Asset Pricing Model," Working Papers 0509, CREI Università degli Studi Roma Tre, revised 2009.
    9. Jim Malley & Hassan Molana, 2002. "The Life-Cycle-Permanent-Income Model: A Reinterpretation and Supporting Evidence," Working Papers 2002_17, Business School - Economics, University of Glasgow.
    10. Jim Malley & Hassan Molana, 2003. "The Life-Cycle-Permanent- Income Hypothesis: A Reinterpretation and Supporting Evidence," Dundee Discussion Papers in Economics 138, Economic Studies, University of Dundee.
    11. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23.
    12. Yulei Luo, 2008. "Consumption Dynamics under Information Processing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 366-385, April.
    13. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," NBER Working Papers 12746, National Bureau of Economic Research, Inc.
    14. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    15. Jiri Slacalek, 2006. "International Wealth Effects," Computing in Economics and Finance 2006 425, Society for Computational Economics.
    16. van de Ven, Justin, 2011. "A structural dynamic microsimulation model of household savings and labour supply," Economic Modelling, Elsevier, vol. 28(4), pages 2054-2070, July.
    17. Irina Khvostova Author-Email: ikhvostova@hse.ru & Anna Novak Author-Email: aenovak@hse.ru, 2016. "The Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(4), pages 395-409, September.
    18. Tutino, Antonella, 2008. "The rigidity of choice: lifetime savings under information-processing constraints," MPRA Paper 16744, University Library of Munich, Germany, revised 24 Jul 2009.
    19. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, February.
    20. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
    21. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:93:y:2011:i:4:p:1135-1145. 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: . General contact details of provider: https://direct.mit.edu/journals .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ann Olson (email available below). General contact details of provider: https://direct.mit.edu/journals .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.