Household Production and the Excess Sensitivity of Consumption to Current Income
61 Pages Posted: 9 Jul 1999 Last revised: 5 May 2000
Date Written: March 1999
Abstract
Empirical research on the permanent income hypothesis (PIH) has found that consumption growth is excessively sensitive to predictable changes in income. This finding is interpreted as strong evidence against the PIH. We propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium version of Becker's (1965) model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors. Although the PIH is true, this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Accounts for the Variation in Retirement Wealth Among U.S. Households?
By B. Douglas Bernheim, Jonathan S. Skinner, ...
-
What Accounts for the Variation in Retirement Wealth Among U.S. Households?
By B. Douglas Bernheim, Jonathan S. Skinner, ...
-
Are Americans Saving "Optimally" for Retirement?
By John Karl Scholz, Ananth Seshadri, ...
-
Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?
-
By Mark Aguiar and Erik Hurst
-
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
By Michael D. Hurd and Susann Rohwedder
-
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
By Michael D. Hurd and Susann Rohwedder
-
Consumption During Retirement: The Missing Link in the Life Cycle
-
The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers
-
Retirement Consumption: Insights from a Survey
By John Ameriks, Andrew Caplin, ...