Consumption Growth Parallels Income Growth: Some New Evidence
In: National Saving and Economic Performance
This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income. There is clear evidence that consumption and income growth are much more closely linked than would be predicted by these theories. it appears that consumption smoothing takes place over periods of several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income component is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer approaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
5995.||Handle:|| RePEc:nbr:nberch:5995||Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- Laurence J. Kotlikoff & Lawrence H. Summers, 1980.
"The Role of Intergenerational Transfers in Aggregate Capital Accumulation,"
NBER Working Papers
0445, National Bureau of Economic Research, Inc.
- Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-32, August.
- repec:fth:harver:1435 is not listed on IDEAS
- De Long, James Bradford & Summers, Lawrence H, 1986.
"Is Increased Price Flexibility Stabilizing?,"
American Economic Review,
American Economic Association, vol. 76(5), pages 1031-44, December.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Robert J. Barro, 1991.
"A Cross-Country Study of Growth, Saving, and Government,"
in: National Saving and Economic Performance, pages 271-304
National Bureau of Economic Research, Inc.
- Robert J. Barro, 1989. "A Cross-Country Study of Growth, Saving, and Government," NBER Working Papers 2855, National Bureau of Economic Research, Inc.
- Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- 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.
- 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.
- Gilbert Ghez, 1975. "Education, the Price of Time, and Life-Cycle Consumption," NBER Chapters, in: Education, Income, and Human Behavior, pages 295-312 National Bureau of Economic Research, Inc.
- Deaton, A., 1989. "Saving in Developing Contries: Theory and Review," Papers 144, Princeton, Woodrow Wilson School - Development Studies.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:5995. 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: ()
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.