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A note on the average propensity to consume, wealth and threshold adjustment

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  • Holmes, Mark J.
  • Shen, Xin

Abstract

We explore the connection between the average propensity to consume (APC) and wealth to income ratio (WY) in the US. We find evidence of a long-run relationship characterised by threshold error correction. It is the APC that responds to long-run disequilibrium where the speed of adjustment is asymmetric insofar as being most likely fastest in regimes characterised by a high APC and low WY.

Suggested Citation

  • Holmes, Mark J. & Shen, Xin, 2013. "A note on the average propensity to consume, wealth and threshold adjustment," Economic Modelling, Elsevier, vol. 35(C), pages 309-313.
    • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:309-313
    DOI: 10.1016/j.econmod.2013.07.008
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    Cited by:

    1. Mark J. HOLMES & Xin SHEN, 2015. "On Wealth Volatility, Asymmetries And The Average Propensity To Consume In The United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 69-78.

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    More about this item

    Keywords

    Threshold error correction; Average propensity to consume; Wealth;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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