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Consumption growth and volatility with consumption externalities

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  • Xie, Runli

Abstract

This paper studies the link between group-specific consumption growth and volatility within a framework of heterogeneous agents, under the assumption of a consumption externality. Household preferences are related to the volatility through asset holding decisions: volatility decreases with groups' degree of patience, and increases with household eagerness to keep up with the group average. Moreover, consumption growth is expected to relate positively to the volatility. This last hypothesis is tested using household data imputed from GSOEP and the German Income and Expenditure Survey (EVS), where a U-shaped relationship is found for the nondurable consumption. Moreover, examining the growth-inequality relationship using EVS data alone shows that it is positive for nondurable and negative for durable consumption.

Suggested Citation

  • Xie, Runli, 2010. "Consumption growth and volatility with consumption externalities," SFB 649 Discussion Papers 2010-057, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2010-057
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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