Business Cycle Fluctuations and Excess Sensitivity of Private Consumption

Peersman, Gert; Pozzi, Lorenzo

doi:10.2139/ssrn.1080184

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Business Cycle Fluctuations and Excess Sensitivity of Private Consumption

Bank of England Working Paper No. 335

19 Pages Posted: 3 Jan 2008

See all articles by Gert Peersman

Gert Peersman

Ghent University - Department of Financial Economics

Lorenzo Pozzi

Ghent University

Date Written: November 2007

Abstract

We investigate whether business cycle fluctuations affect the degree of excess sensitivity of private consumption growth to disposable income growth. Using multivariate state space methods and quarterly US data for the period 1965-2000 we find that excess sensitivity is significantly higher during recessions.

Keywords: Private consumption, excess sensitivity, business cycle, liquidity constraints, state space models

JEL Classification: E21

Suggested Citation: Suggested Citation

Peersman, Gert and Pozzi, Lorenzo, Business Cycle Fluctuations and Excess Sensitivity of Private Consumption (November 2007). Bank of England Working Paper No. 335, Available at SSRN: https://ssrn.com/abstract=1080184 or http://dx.doi.org/10.2139/ssrn.1080184