Explaining Consumption: A Simple Test of Alternative Hypotheses

Tamim Bayoumi

No 1289, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A method of testing the relative importance for consumption of full insurance behaviour and changes in income is proposed and estimated using data across Canadian provinces. The focus of the estimation is less on whether or not the full insurance model can be rejected than on how much each of these hypotheses can contribute to explaining overall variation in consumption. Both types of behaviour are found to be statistically significant, but the full insurance model is found to explain considerably more of the growth in consumption than changes in income do.

Keywords: Consumption; Liquidity Constraints; Optimal Debt Target (search for similar items in EconPapers)
JEL-codes: D12 E21 (search for similar items in EconPapers)
Date: 1995-12
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Explaining Consumption: A Simple Test of Alternative Hypotheses (1997)
Working Paper: Explaining Consumption: A Simple Test of Alternative Hypotheses (1997)
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