Consumption Volatility, Marketization, and Expenditure in an Emerging Market Economy

44 Pages Posted: 20 Oct 2012 Last revised: 8 Feb 2014

Daniel L. Hicks

University of Oklahoma - Department of Economics

Date Written: February 1, 2014

Abstract

In response to income fluctuations, households smooth consumption by substituting between market expenditure and time inputs. This paper provides evidence of this substitution in the context of food consumption over transitory and permanent income fluctuations in Mexico. Household time investments drive a wedge between consumption and expenditure, amplifying measured expenditure volatility. Volatility decompositions for Mexico and the U.S. suggest that the extent of bias in expenditure-based measures induced by changes in marketization is relatively larger in the Mexican setting. These findings imply that volatility comparisons between commodities or across countries are misleading when consumption measures ignore home production.

Keywords: marketization; home production; consumption; expenditure; volatility

JEL Classification: E01, E2, E3, O11, O47, O54

Suggested Citation

Hicks, Daniel L., Consumption Volatility, Marketization, and Expenditure in an Emerging Market Economy (February 1, 2014). Available at SSRN: https://ssrn.com/abstract=2164457 or http://dx.doi.org/10.2139/ssrn.2164457

Daniel Lee Hicks (Contact Author)

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States

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