Arbeitspapier

Consumption, habit persistence, imperfect information and the lifetime budget constraint

to connected objects

Based on the households' utility maximisation, a closed form approximation of the consumption function is derived and the deep parameters of the consumption function are estimated using aggregate euro area data. The novel element in our approach is the parameterisation of the information content regarding future income changes. In addition to the information regarding time series properties of the historical development of labour income, consumers have also period-specific information on future income realisations. Estimation results support the hypothesis that, although front-loaded, consumers have a lot of information on future income changes, but that also lagged consumption, through habit formation, plays an important role.

Language: Englisch

Bibliographic citation: Series: ECB Working Paper ; No. 251

Classification: Wirtschaft
Consumer Economics: Empirical Analysis
Macroeconomics: Consumption; Saving; Wealth

Subject: Consumption
life-cycle hypothesis
wealth

Event: Geistige Schöpfung

(who): Willman, Alpo

Event: Veröffentlichung

(who): European Central Bank (ECB)

(where): Frankfurt a. M.

(when): 2003

Handle: http://hdl.handle.net/10419/152685

Last update: 10.03.2025, 11:42 AM CET

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Object type

Arbeitspapier

Associated

Willman, Alpo
European Central Bank (ECB)

Time of origin

2003

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