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Consumption Growth and Volatility with Consumption Externalities

  • Runli Xie
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    This paper studies the link between group-speci c consumption growth and volatility within a framework of heterogeneous agents, under the assumption of a consumption externality. Household preferences are related to the volatility through asset holding decisions: volatility decreases with groups' degree of patience, and increases with household eagerness to keep up with the group average. Moreover, consumption growth is expected to relate positively to the volatility. This last hypothesis is tested using household data imputed from GSOEP and the German Income and Expenditure Survey (EVS), where a U-shaped relationship is found for the nondurable consumption. Moreover, examining the growth-inequality relationship using EVS data alone shows that it is positive for nondurable and negative for durable consumption.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2010-057.pdf
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    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-057.

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    Length: 61 pages
    Date of creation: Nov 2010
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2010-057
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    1. Gundi Knies, 2010. "Income Comparisons among Neighbours and Life Satisfaction in East and West Germany," SOEPpapers on Multidisciplinary Panel Data Research 298, DIW Berlin, The German Socio-Economic Panel (SOEP).
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