The Economic Journal, Vol. 118, No. 527, pp. 454-476, February 2008
46 Pages Posted: 11 Aug 2009
Date Written: September 1, 2007
Recent theoretical contributions have suggested peer-group effects as a potential explanation for several puzzles in macroeconomics, but their empirical relevance for intertemporal 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.
JEL Classification: C23, D12, D91, Z13
Suggested Citation: Suggested Citation
Maurer, Jürgen and Meier, Andre, Smooth It Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice (September 1, 2007). The Economic Journal, Vol. 118, No. 527, pp. 454-476, February 2008; MEA Discussion Paper No. 167-08. Available at SSRN: https://ssrn.com/abstract=1444428 or http://dx.doi.org/10.2139/ssrn.1444428