What explains consumption and money holding in the very short-run?: evidence from checking account data

Marc Anthony Fusaro and Donald Dutkowsky ()

Applied Economics Letters, 2013, vol. 20, issue 13, 1228-1232

Abstract: This article investigates consumption and money-holding behaviour within an intertemporal optimization model of the individual household. Our data set consists of deposits and withdrawals from individual household checking accounts that received pay cheques by direct deposit. We construct samples of panel data for households with weekly, biweekly and semi-monthly pay periods and form two different measures of consumption. Generalized Method of Moments estimates of structural parameters provide limited evidence for habit formation or durability. The results indicate small but positive marginal utility of money within a well-behaved utility function, with ‘rule of thumb’ consumption a close approximation. These findings are uniform for sub-samples split according to household age or income.

Date: 2013
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DOI: 10.1080/13504851.2013.799749

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