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Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces

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  • Charlotte Ostergaard
  • Bent E. Serensen
  • Oved Yosha

Abstract

State-level consumption exhibits excess sensitivity to lagged income to the same extent as U.S. aggregate data, but state-specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged state-specific incomea result that also holds for Canadian provinces. We propose the following interpretation: borrowing and lending in response to changes in consumer demand are easier for individual U.S. states than for the United States as a whole, and therefore, the measured deviation from the benchmark permanent income hypothesis model is smaller. However, lagged state-specific variables help predict state-specific consumption, suggesting that the PIH model still requires qualification.

Suggested Citation

  • Charlotte Ostergaard & Bent E. Serensen & Oved Yosha, 2002. "Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 634-645, June.
    • Handle: RePEc:ucp:jpolec:v:110:y:2002:i:3:p:634-645
    DOI: 10.1086/339724
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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