Arbeitspapier

Habits, sentiment and predictable income in the dynamics of aggregate consumption

This paper explores whether habit formation in the representative agent’s preferences can explain two failures of the standard permanent income model with intertemporally separable utility: the sensitivity of consumption to lagged consumer sentiment and to predictable changes in current income I show that in a habit formation model the sensitivity of consumption growth to predicted income can be to a large extent reinterpreted as a sluggish response of consumption to news Moreover the sensitivity of consumption growth to lagged sentiment merely reflects the serial corre-lation in consumption growth generated by habits I study the model’s predictions for the effect of the recent tax cut on aggregate consumption Contrary to the PIH model consumers with habits respond to permanent tax cuts slowly The estimated model predicts an immediate (first-quarter) MPC out of the permanent tax cut of only 30%.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 458

Klassifikation
Wirtschaft
General Aggregative Models: General
Macroeconomics: Consumption; Saving; Wealth
Fiscal Policies and Behavior of Economic Agents: Household
Thema
consumer sentiment
excess sensitivity
habit formation
consumption
marginal propensity to consume
tax cuts
Einkommenshypothese
Gesamtwirtschaftlicher Konsum
Konsumtheorie
Theorie

Ereignis
Geistige Schöpfung
(wer)
Sommer, Martin
Ereignis
Veröffentlichung
(wer)
The Johns Hopkins University, Department of Economics
(wo)
Baltimore, MD
(wann)
2001

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Sommer, Martin
  • The Johns Hopkins University, Department of Economics

Entstanden

  • 2001

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