The response of consumption to income: a cross-country investigation‏

Abstract

In previous work we have argued that aggregate, post-war. United States data on consumption and income are well described by a model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent income hypothesis. In this paper we ask whether the same model fits quarterly data from the United Kingdom over the period 1957–1988 and from Canada, France, Japan, and Sweden over the period 1972–1988. We also explore several generalizations of the basic model.

☆

This paper was presented at the International Seminar on Macroeconomics, Universität Mannheim, Germany, June 1990. We are grateful to Larry Summers, to John Cochrane and David Hendry (our discussants), and to ISOM participants for helpful comments. We thank John Ammer for research assistance, and Tamim Bayoumi for providing us with data.

Copyright © 1991 Published by Elsevier B.V.