Consumption and Fluctuations: What Role for Behavioral Economics?

Pablo Mira ()
Additional contact information
Pablo Mira: Interdisciplinary Institute of Political Economy (UBA-CONICET), Argentina

Ensayos Económicos, 2023, vol. 1, issue 82, 98-127

Abstract: A role is proposed for Behavioral Economics in the economic cycle, and it is empirically tested. In particular, we argue that the use of spending heuristics plays a role in amplifying fluctuations. Empirical analysis indicates that, by far, the most robust determinant of consumption is current income (in rates), especially in less developed economies, a result consistent with the Mental Accounting hypothesis. Additionally, high volatility environments are associated with a more pronounced mental rule, linked to the need to exercise what we call Cognitive Closure in these contexts. The analysis of on- and off-trend consumption indicates: (i) marginal propensities to consume (MPCs) are positive and significant both on- and off-trend; (ii) in developed countries MPCs increase appreciably during accelerated expansions; and (iii) in developing countries MPCs remains roughly constant on- and off-trend. These results suggest a role for traditional countercyclical policy.

Keywords: consumption; expectations; heuristics (search for similar items in EconPapers)
JEL-codes: E21 E32 E70 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcra.gob.ar/Institucional/DescargaPDF/DownloadPDF.aspx?Id=1120 Spanish version (versión en Español) (application/pdf)

Related works:
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:bcr:ensayo:v:1:y:2023:i:82:p:98-127

Access Statistics for this article

Ensayos Económicos is currently edited by Germán Feldman

More articles in Ensayos Económicos from Central Bank of Argentina, Economic Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Federico Grillo ().