Are Consumers Planning Consumption According to an Euler Equation?

Lena Dräger

No 1621, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: Evaluating a new survey dataset of German consumers, we test whether individual consumption plans are formed according to an Euler equation derived from consumption life-cycle models. Estimating several consumption Euler equations, the results are mostly in line with the theory: We ?nd evidence of consumption smoothing, since individual current and planned spending are positively correlated. In addition, current spending is positively correlated with both quantitative and qualitative in?ation expectations, and negatively with quantitative nominal interest rate expectations. Overall, this results in a negative link between current spending and implied real interest rate expectations, where the weaker e?ect of nominal interest rate expectations might be due to the current zero-lower-bound environment. As expected, the e?ect of perceived real interest rates is most pronounced for consumers’ who are active on ?nancial markets. Finally, economic news on in?ation and ?nancial market developments observed by the consumer strengthen the e?ects of their interest rate and in?ation expectations on current spending.

Keywords: Euler equation; consumers; macroeconomic expectations; consumption plans; survey micro data. (search for similar items in EconPapers)
JEL-codes: C83 D12 D14 D84 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-11-15
New Economics Papers: this item is included in nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1621.pdf First version, 2016 (application/pdf)

Related works:
Working Paper: Are Consumers Planning Consumption According to an Euler Equation? (2016)
Working Paper: Are Consumers Planning Consumption According to an Euler Equation? (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:1621

Access Statistics for this paper

More papers in Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit IPP ().