Consumption
39 Pages Posted: 29 Dec 2006 Last revised: 11 Sep 2022
Date Written: May 1987
Abstract
Macroeconomic research on consumption has been influenced profoundly by rational expectations. First, rational expectations together with the hypothesis of constant expected real interest rates implies that consumption should evolve as a random walk. Much of the research of the past decade has been devoted to testing the random walk hypothesis and to explaining its failure. Three branches of the literature have developed. The first relies on the durability of consumption to explain deviations from the random walk property. The second invokes liquidity constraints which block consumers from the credit market transactions needed to make consumption follow a random walk when income fluctuates up and down. The third branch dispenses with the assumption that expected real interest rates are constant. It attempts to explain deviations from the random walk in terms of intertemporal substitution.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
An Empirical Analysis of Personal Bankruptcy and Delinquency
-
An Empirical Analysis of Personal Bankruptcy and Delinquency
-
By Orazio Attanasio and Guglielmo Weber
-
The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households
-
Consumption Over the Life Cycle and Over the Business Cycle
By Orazio Attanasio and Martin Browning
-
By David Laibson, Andrea Repetto, ...
-
A Quantitative Theory of Unsecured Consumer Credit with Risk of Default
By Satyajit Chatterjee, Philip Dean Corbae, ...