Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces

Posted: 29 May 2003

See all articles by Charlotte Ostergaard

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance; European Corporate Governance Institute (ECGI)

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

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Abstract

State-level consumption exhibits excess sensitivity to lagged income to the same extent as U.S. aggregate data, but state-specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged state-specific income - a result that also holds for Canadian provinces. We propose the following interpretation: borrowing and lending in response to changes in consumer demand are easier for individual U.S. states than for the United States as a whole, and therefore, the measured deviation from the benchmark permanent income hypothesis model is smaller. However, lagged state-specific variables help predict state-specific consumption, suggesting that the PIH model still requires qualification.

Suggested Citation

Ostergaard, Charlotte and Sorensen, Bent E. and Yosha, Oved, Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces. Journal of Political Economy, Vol. 110, June 2002. Available at SSRN: https://ssrn.com/abstract=309725

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

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