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Deconstructing the Consumption Function: New Tools and Old Problems

Author

Listed:
  • Stephen Pollock

    (Queen Mary, University of London)

  • Nikoletta Lekka

    (Queen Mary, University of London)

Abstract

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.

Suggested Citation

  • Stephen Pollock & Nikoletta Lekka, 2001. "Deconstructing the Consumption Function: New Tools and Old Problems," Working Papers 448, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp448
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    File URL: http://www.econ.qmul.ac.uk/media/econ/research/workingpapers/archive/wp448.pdf
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    References listed on IDEAS

    as
    1. 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.
    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. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    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 661-692, December.
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    Cited by:

    1. Colignatus, Thomas, 2009. "Consumer durables as investments that can help us out of the current economic crisis," MPRA Paper 13382, University Library of Munich, Germany.
    2. Colignatus, Thomas, 2013. "Money as gold versus money as water," MPRA Paper 45759, University Library of Munich, Germany, revised 02 Apr 2013.
    3. Colignatus, Thomas, 2008. "A note on competing economic theories on the 2007-2008+ financial crisis: The case for (hidden) stagflation," MPRA Paper 10831, University Library of Munich, Germany.

    More about this item

    Keywords

    Consumption function; Trend estimation; Seasonal adjustment; Spectral analysis;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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