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What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?

  • Bent E. Sørensen

    ()

    (Department of Economics, University of Houston)

  • Maria Jose Luengo-Prado

    (Northeastern University)

This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states, in particular, the MPC out of current income is higher in states where income is more persistent and the MPC out of lagged income is lower in agricultural states. Several models of individual consumer behavior are analyzed and simulated in order to isolate a model which is able to match the estimated MPCs well.

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File URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/2005-03.pdf
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Paper provided by Department of Economics, University of Houston in its series Working Papers with number 2005-03.

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Length: 40 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:hou:wpaper:2005-03
Contact details of provider: Postal: Houston TX 77023
Web page: http://www.uh.edu/class/economics/

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