Consumption and Investment

No 2580, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents an overview of current models of consumption and investment behavior. First, the stochastic implications of the permanent income model and empirical tests of these implications are discussed. Then the simple theoretical model is extended to include expenditure on consumer durables. In addition, the implications of liquidity constraints and the unpredictability of the rate of return on wealth are discussed. The overview of consumption behavior closes with a critical discussion of the Ricardia Equivalence Theorem. Investment behavior is analyzed using a dynamic optimization model of a firm facing costs of adjustment. This framework integrates the accelerator model, the neoclassical model and the q theory. The model is then used to analyze the interaction of corporate taxes, inflation and investment and also to analyze the effects of uncertainty on investment. The overview of investment concludes with a discussion of inventory investment.

Date: Written 1988-04
Note: EFG
View citations in EconPapers

Published as Abel, Andrew B. "Consumption and Investment," from Handbook of Monetary Economics, ed. by Benjamin M. Friedman and Frank Hahn.

Downloads: (external link)
http://www.nber.org/papers/w2580.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Chapter: Consumption and investment (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2580
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().