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Why is Consumption so Seasonal?


  • Andrew Scott


UK and US data suggest that consumption seasonality is both stochastic and characterised by permanent changes, that is there are seasonal unit roots in consumption. This paper explains the changes in the seasonal pattern of UK consumption and in doing so offers new insights into the much studied business cycle characteristics of consumption. We find that changes in consumption seasonality have zero or negative correlation with changes in the income seasonal, an observation which casts doubt on liquidity constraints as an important determinant of consumption fluctuations. Neither is consumption seasonality driven by precautionary saving, rates of return or climatic variables. Instead, seasonality in consumption is induced by the utility function, with the evidence ruling out seasonal habits or periodic effects. The evidence is consistent with seasonality changing due to preference shocks which we interpret, based on econometric evidence and a historical survey, as changes in customs. While these changes are slow moving they generate substantial variation in seasonal fluctuations in the post-war period, with Christmas consumption gaining in importance. Our results suggest that seasonal fluctuations may differ significantly from business cycle fluctuations and suggest that preference shifts should be considered as a possible source of non-seasonal fluctuations in consumption.

Suggested Citation

  • Andrew Scott, 1995. "Why is Consumption so Seasonal?," CEP Discussion Papers dp0269, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0269

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    References listed on IDEAS

    1. Kaufman, Roger T, 1989. "The Effects of Statutory Minimum Rates of Pay on Employment in Great Britain," Economic Journal, Royal Economic Society, vol. 99(398), pages 1040-1053, December.
    2. Stephen Machin & Alan Manning & S Woodland, 1993. "Are Workers Paid their Marginal Product? Evidence from a Low Wage Labour Market," CEP Discussion Papers dp0158, Centre for Economic Performance, LSE.
    3. Nickell, Stephen J & Wadhwani, Sushil, 1990. "Insider Forces and Wage Determination," Economic Journal, Royal Economic Society, vol. 100(401), pages 496-509, June.
    4. Richard Dickens & Paul Gregg & Stephen Machin & Alan Manning & Jonathan Wadsworth, 1993. "Wages Councils: Was There a Case for Abolition?," British Journal of Industrial Relations, London School of Economics, vol. 31(4), pages 515-529, December.
    5. Sullivan, Daniel, 1989. "Monopsony Power in the Market for Nurses," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 135-178, October.
    6. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    7. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    8. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
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    Cited by:

    1. Rodrigues, Paulo M. M. & Taylor, A. M. Robert, 2004. "Alternative estimators and unit root tests for seasonal autoregressive processes," Journal of Econometrics, Elsevier, vol. 120(1), pages 35-73, May.
    2. Alan Carruth & Andrew Dickerson, 2003. "An asymmetric error correction model of UK consumer spending," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 619-630.
    3. Smith, Richard J. & Robert Taylor, A. M., 2001. "Recursive and rolling regression-based tests of the seasonal unit root hypothesis," Journal of Econometrics, Elsevier, vol. 105(2), pages 309-336, December.

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