The lambda model and "rule of thumb" consumers: An estimation problem in existing studies

Fredrik W. Andersson

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2011, vol. 40, issue 4, 381-384

Abstract: Campbell and Mankiw's (1990) lambda model has frequently been used to estimate the fraction of rule of thumb consumers (i.e., consumers who do not smooth their consumption). However, the present note shows theoretically, as well as with a numerical illustration, that existing empirical applications of the lambda model imply a systematic underestimation of this fraction. The reason is that per capita values instead of aggregate values (which the model is designed for) are used.

Keywords: Permanent; income; consumers; Current; income; consumers; Rule; of; thumb; consumers; The; lambda; model; Aggregation; bias (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:40:y:2011:i:4:p:381-384

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