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How Long Can the U.S. Consumers Carry the economy on Their Shoulders?

  • Philip Arestis

    (The Levy Economics Institute)

  • Elias Karakitsos

    (Trafalgar Asset Managers)

The consumer has been on a tightrope since the bursting of the "new economy" bubble, as losses in equity markets have been partly offset by gains in real estate and fiscal support and mortgage refinancing have partly offset increased consumer cautiousness. The consumer will remain on a tightrope in the near future, but if the economy were to stumble, the fragile consumer might contribute to turning the downturn into a deep and protracted recession. There are two risks to the continuation of consumer resilience. The first arises from the fact that this has been a jobless recovery. The second arises from a growing personal sector imbalance that is fueled by the growing property bubble. Hence, the short-term outlook remains uncertain, but the long-term one is bleak.

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Paper provided by EconWPA in its series General Economics and Teaching with number 0306003.

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Length: 41 pages
Date of creation: 05 Jun 2003
Date of revision:
Handle: RePEc:wpa:wuwpgt:0306003
Note: Type of Document - MS Word; prepared on PC; to print on HP/PostScript; pages: 41; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Christopher D. Carroll, 1992. "How does future income affect current consumption?," Working Paper Series / Economic Activity Section 126, Board of Governors of the Federal Reserve System (U.S.).
  2. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
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  5. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
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  8. Modigliani, Franco, 1988. "The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 15-40, Spring.
  9. Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
  10. Don Kohn, 2003. "The strength in consumer durables and housing," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  12. George-Marios Angeletos, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
  13. Marjorie Flavin, 1985. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 117-36, February.
  14. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  15. Dimitri B. Papadimitriou & Anwar Shaikh & Claudio H. dos Santos & Gennaro Zezza, 2002. "Is Personal Debt Sustainable?," Economics Strategic Analysis Archive 02-11, Levy Economics Institute.
  16. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
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