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Consumption Patterns over Pay Periods

  • Clare Kelly

    ()

    (University of Warwick, Department of Economics)

  • Gauthier Lanot

    ()

    (Keele University, Department of Economics)

This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions on a more frequent basis. The model incorporates price uncertainty and imperfect credit markets. The simulated numerical solution to this model shows that weekly consumption functions are ordered such that the functions within the payment period are highest in the first and the last week of the payment cycle for all wealth levels. Using weekly expenditure data from the FES we estimate the coefficient of relative risk aversion (point estimates are between 2 and 7) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

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File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0214.pdf
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Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2002/14.

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Length: 48 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:kee:kerpuk:2002/14
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Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom

Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
Web page: http://www.keele.ac.uk/depts/ec/cer/
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