Specifications for Consumption Function: Tests for South American Countries (Especificaoes para a Funcao Consumo: Testes para Paises da America do Sul)
Fabio Augusto Reis Gomes
Getulio Vargas Foundation (FGV) - Graduate School of Economics
Lourenço Senne Paz
Pesquisa e Planejamento Econoomico, Vol. 34, No. 1, April 2004
The main goal of this paper is to study the applicability of the Keynesian, Permanent Income and Rational Expectations, and Mankiw and Campbell's (1989) Hybrid Model of Consumption Theory, using a panel data sample of South American countries, including Argentina, Brazil, Chile, Colombia, Peru, Paraguay, and Uruguay. Due to the fact that these theories present distinct predictions, when evaluating the consumption behavior, we try to discuss which one fits better in the data. The Hybrid Model, that considers the possibility of credit constraints, was the model that had the best fit. Thus, we estimated the income share that belonged to credit constrained households in each country. Argentina and Chile were the countries that presented the largest share of credit constrained income, while Peru was the country with the smallest share of credit constrained income.
Keywords: Consumption, Permanent Income Theory, Credit Constraint, South
JEL Classification: C23, C52, E21, N36Accepted Paper Series
Date posted: April 13, 2005
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