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Consumption Patterns over Pay Periods

  • Kelly, Clare

    (University College Dublin)

  • Gauthier Lanot

    (Keele University)

This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions at frequent points during that period, when there is uncertainty with respect to prices and imperfect credit markets. We simulate the numerical solution to this model and find that optimal consumption is u-shaped over the pay period. We apply the model to weekly expenditure data from the FES to estimate the coefficient of relative risk aversion (preliminary point estimates are around 6) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 112.

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Date of creation: 29 Aug 2002
Date of revision:
Handle: RePEc:ecj:ac2002:112
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  4. Mankiw, N.G. & Zeldes, S.P., 1990. "The Consumption Of Stockholders And Non-Stockholders," Weiss Center Working Papers 23-90, Wharton School - Weiss Center for International Financial Research.
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  7. M. Dolores Collado & Martín Browning, 1999. "-The Response Of Expenditures To Anticipated Income Changes: Panel Data Estimates," Working Papers. Serie AD 1999-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  12. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
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  29. repec:fth:pennfi:69 is not listed on IDEAS
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