Consumption and Aggregate Constraints: International Evidence

Joseph DeJuan and Maria Jose Luengo-Prado ()
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Joseph DeJuan: University of Waterloo

Macroeconomics from EconWPA

Abstract: This paper documents that region-level consumption exhibits excess sensitivity to lagged income in Italy, Japan, Spain, the United Kingdom and West Germany. However, region-specific idiosyncratic) consumption exhibits substantially less sensitivity to lagged region-specific income. Also, excess sensitivity is inversely related to standard measures of openness and credit market integration and for most countries, it has decreased over time. These findings are consistent with those reported in Ostergaard, Sorensen & Yosha (2002) for U.S. state-level and Canadian province-level data, and provide empirical support for the hypothesis that closed-economy constraints may partly be responsible for the excess sensitivity phenomenon in aggregate data.

Keywords: Permanent Income Hypothesis; Consumption; Regional Data; Openness (search for similar items in EconPapers)
JEL-codes: E21 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: Written 2005-01-14
Note: Type of Document - pdf; pages: 21
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http://129.3.20.41/eps/mac/papers/0501/0501018.pdf (application/pdf)

Related works:
Journal Article: Consumption and Aggregate Constraints: International Evidence (2006)
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