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What explains consumption in the very short-run? Evidence from checking account data

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  • Fusaro, Marc Anthony
  • Dutkowsky, Donald H.

Abstract

This paper investigates consumption behavior within an intertemporal optimization model of the representative household. Our dataset consists of deposits and withdrawals from individual household checking accounts that received paychecks by direct deposit. We construct samples of panel data for households with weekly, biweekly, and semi-monthly pay-periods and form two different measures of consumption for each sample. GMM estimates of structural parameters provide mixed evidence for habit formation or durability and limited support for the permanent income hypothesis. The results instead point to “rule of thumb” consumption under liquidity constraints, where the household consumes its current disposable income each pay-period with possible debt servicing. These findings are uniform with regard to estimation of sub-samples split according to age or household income.

Suggested Citation

  • Fusaro, Marc Anthony & Dutkowsky, Donald H., 2011. "What explains consumption in the very short-run? Evidence from checking account data," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 542-552.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:542-552
    DOI: 10.1016/j.jmacro.2011.05.001
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    2. Holden, Steinar, 2012. "Implications of Insights from Behavioral Economics for Macroeconomic Models," Memorandum 25/2012, Oslo University, Department of Economics.
    3. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral economics and macroeconomic models," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 133-147.
    4. Sena Durguner, 2018. "Variations in farm consumption and their relationship to income: an empirical investigation of Illinois farm households," Applied Economics, Taylor & Francis Journals, vol. 50(9), pages 990-1005, February.

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    More about this item

    Keywords

    Household consumption; Habit formation; Durability; “Rule of thumb” consumption; Liquidity constraints; Checking account data;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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