Smooth It Like the Joneses? Estimating Peer-Group Effects in Inter-Temporal Consumption Choice

23 Pages Posted: 26 Feb 2008

See all articles by Jürgen Maurer

Jürgen Maurer

University of Mannheim

Andre Meier

International Monetary Fund (IMF)

Date Written: 0000

Abstract

Recent theoretical contributions have suggested peer-group effects as a potential explanation for several puzzles in macroeconomics but their empirical relevance for inter-temporal consumption choice is an open question. We derive an extension of the standard life-cycle model that allows for consumption externalities. In this framework, we propose a social multiplier approach to distinguish true externalities from merely correlated effects. Estimating our model using US panel data, we find strong predictable co-movement of household consumption within peer groups. Although much of this co-movement reflects correlated effects only, there is statistically significant evidence for moderate consumption externalities across several plausible peer-group specifications.

Suggested Citation

Maurer, Jürgen and Meier, Andre, Smooth It Like the Joneses? Estimating Peer-Group Effects in Inter-Temporal Consumption Choice (0000). The Economic Journal, Vol. 118, Issue 527, pp. 454-476, March 2008, Available at SSRN: https://ssrn.com/abstract=1096382 or http://dx.doi.org/10.1111/j.1468-0297.2007.02129.x

Jürgen Maurer (Contact Author)

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Andre Meier

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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