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The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis

  • G. EVERAERT

    ()

  • L. POZZI

    ()

  • -

This paper examines the sources of stickiness in aggregate consumption growth. We first derive a dynamic consumption equation which nests recent developments in consumption theory: ruleof- thumb consumption, habit formation, non-separabilities between both private consumption and hours worked and private consumption and government consumption, intertemporal substitution effects and precautionary savings. Next, we estimate this dynamic consumption equation for a panel of 15 OECD countries over the period 1972-2007 taking into account endogeneity issues and error cross-sectional dependence. To this end, we develop a generalised method of moments version of the common correlated effects pooled estimator and demonstrate its small sample behaviour using Monte Carlo simulations. The estimation results support the labour-consumption complementarity hypothesis, the rule-of-thumb consumption model and the notion that precautionary savings matter for the aggregate economy

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 10/654.

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Length: 34 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:rug:rugwps:10/654
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