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What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?

Bent Sorensen and Maria Luengo-Prado ()

No 2005-03, Working Papers from Department of Economics, University of Houston

Abstract: This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states, in particular, the MPC out of current income is higher in states where income is more persistent and the MPC out of lagged income is lower in agricultural states. Several models of individual consumer behavior are analyzed and simulated in order to isolate a model which is able to match the estimated MPCs well.

Keywords: Permanent Income; Credit Rationing; Precautionary saving; Time-Aggregation; Durable Goods; Risk Sharing. (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent and nep-reg
Date: 2005-02
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Journal Article: What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption? (2008) Downloads
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