Arbeitspapier
UK Consumers' Habits
We follow Fuhrer (2000) in estimating via Maximum Likelihood a log-linear consumption function on UK data. In doing so we consider various habit formation assumptions. We show that a model of purely "external" habits as in Fuhrer (2000) fits the UK data remarkably well, and possibly in a superior way than US data where, according to our estimates, consumers' habits look more "internal" in that they appear indexed to past average consumption of only a subset of (peer) consumers in the economy, rather than total past per capita consumption. We also find that for about one seventh of UK consumers, current consumption equals current income_a strong violation of the permanent income hypothesis. Embedded in a sticky price-sticky inflation open-economy monetary model, the model that we estimate helps mimic the hump-shaped response of the output gap to income and interest rate shocks observed in the UK. Estimates of output Euler equations for the UK using a similar method agree with our general results. The consumption and output models that we estimate forecast significantly better than unrestricted open-economy VARs.
- Language
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Englisch
- Bibliographic citation
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Series: External MPC Unit Discussion Paper ; No. 13
- Classification
-
Wirtschaft
- Event
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Geistige Schöpfung
- (who)
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Banerjee, Ryan
Batini, Nicoletta
- Event
-
Veröffentlichung
- (who)
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Bank of England, External Monetary Policy Committee Unit
- (where)
-
London
- (when)
-
2003
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Banerjee, Ryan
- Batini, Nicoletta
- Bank of England, External Monetary Policy Committee Unit
Time of origin
- 2003
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