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International evidence on sticky consumption growth

  • Carroll, Christopher D.
  • Slacalek, Jiri
  • Sommer, Martin

We estimate 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 auto-correlation, 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 Campbell and Mankiw (1989) model. In several countries, the sticky-consumption-growth and Campbell–Mankiw models work about equally well. JEL Classification: C6, D9, E2

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Paper provided by European Central Bank in its series Working Paper Series with number 0886.

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Date of creation: Mar 2008
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Handle: RePEc:ecb:ecbwps:20080886
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