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Deconstructing the Consumption Function: New Tools and Old Problems

  • Stephen Pollock

    (Queen Mary, University of London)

  • Nikoletta Lekka

    (Queen Mary, University of London)

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    In this paper, we analyse anew the relationship between aggregate income and consumption in the United Kingdom. Our analysis entails a close examination of the structure of the data, for which we employ a variety of spectral methods which depend on the concepts of Fourier analysis. We discover that fluctuations in the rate of growth of consumption tend to precede similar fluctuations in income, which contradicts a common supposition. We also highlight the difficulty of uncovering from the aggregate data a structural equation representing the behaviour of consumers.

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    File URL: http://www.econ.qmul.ac.uk/papers/doc/wp448.pdf
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    Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 448.

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    Date of creation: Dec 2001
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    Handle: RePEc:qmw:qmwecw:wp448
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    1. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, November.
    2. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    3. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    4. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
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