Specifications for Consumption Function: Tests for South American Countries (Especificaoes para a Funcao Consumo: Testes para Paises da America do Sul)

Abstract:     
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, N36

Accepted Paper Series