EconPapers    
Economics at your fingertips  
 

Household Production and the Excess Sensitivity of Consumption to Current Income

Marianne Baxter () and Urban Jermann ()

No 7046, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Empirical research on the permanent income hypothesis (PIH) has found that consumption growth is excessively sensitive to predictable changes in income. This finding is interpreted as strong evidence against the PIH. We propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium version of Becker's (1965) model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors. Although the PIH is true, this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth.

JEL-codes: D13 E10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-dge, nep-lab and nep-mic
Date: 1999-03
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80) Track citations by RSS feed

Published as American Economic Review, Vol. 89, no. 5 (September 1999): 902-920.

Downloads: (external link)
http://www.nber.org/papers/w7046.pdf (application/pdf)

Related works:
Journal Article: Household Production and the Excess Sensitivity of Consumption to Current Income (1999) Downloads
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:nbr:nberwo:7046

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7046

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-08-20
Handle: RePEc:nbr:nberwo:7046