Explaining Consumption: A Simple Test of Alternative Hypotheses

May 1, 1997

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Consumption, Disposable income, Government consumption, Income, National accounts, Personal income

Keywords: constant term, Consumption, consumption datum, consumption model, consumption pattern, Disposable income, Government consumption, Income, income coefficient, income hypothesis, income model, income term, Liquidity Constraints, nondurable consumption, Personal income, Risk Sharing, WP

Pages:
29
Volume:
1997
DOI:
https://doi.org/10.5089/9781451968439.001
Issue:
056
Series:
Working Paper No. 1997/056
Stock No:
WPIEA0561997
ISBN:
9781451968439
ISSN:
1018-5941

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Notes

Also published in Staff Papers, Vol. 44, No. 4, December 1997.

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