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Explaining Consumption: A Simple Test of Alternative Hypotheses

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  • Mr. Tamim Bayoumi

Abstract

A method of testing the relative importance for consumption of risk sharing behavior and changes in current income is proposed and estimated using data across Canadian provinces. The focus of the estimation is less on whether or not the risk sharing model can be rejected than on how much each of these hypotheses can contribute to explaining overall variation in consumption. Both types of behavior are found to be statistically significant, but the risk sharing model is found to explain considerably more of the growth in consumption than does changes in income.

Suggested Citation

  • Mr. Tamim Bayoumi, 1997. "Explaining Consumption: A Simple Test of Alternative Hypotheses," IMF Working Papers 1997/056, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1997/056
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    Cited by:

    1. David Blake, 2004. "The impact of wealth on consumption and retirement behaviour in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 555-576.
    2. Tomislav Globan, 2014. "Testing the 'trilemma' in post-transition Europe - a new empirical measure of capital mobility," Post-Communist Economies, Taylor & Francis Journals, vol. 26(4), pages 459-476, December.
    3. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    4. Johann Scharler, 2004. "International Risk Sharing and Investor Protection: Some Evidence from the EU-15," Economics Bulletin, AccessEcon, vol. 6(23), pages 1-13.
    5. Blake, David, 2003. "Modelling the composition of personal sector wealth in the United Kingdom," LSE Research Online Documents on Economics 24866, London School of Economics and Political Science, LSE Library.
    6. A. Bayar & K. Mc Morrow, 1999. "Determinants of private consumption," European Economy - Economic Papers 2008 - 2015 135, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    Keywords

    WP; constant term; Consumption; Risk Sharing; Liquidity Constraints; income model; consumption model; nondurable consumption; income term; income coefficient; consumption pattern; consumption datum; income hypothesis; Income; Personal income; Disposable income; Government consumption;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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