Smooth It Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice

The Economic Journal, Vol. 118, No. 527, pp. 454-476, February 2008

MEA Discussion Paper No. 167-08

46 Pages Posted: 11 Aug 2009  

Jürgen Maurer

University of Mannheim

Andre Meier

International Monetary Fund (IMF)

Date Written: September 1, 2007

Abstract

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

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

Jürgen Maurer

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Andre Meier (Contact Author)

International Monetary Fund (IMF) ( email )

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

Paper statistics

Downloads
47
Abstract Views
584