Why have consumption functions broken down?

A P Blake and P F Westaway ()

No 38, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: Most forecasters in the UK failed to foresee the changes in consumer spending in the boom of the late‐1980s and subsequently during the downturn of the early‐1990s. With hindsight two possible explanations can be given: financial liberalisation allowed consumers to spend more, and ultimately to overspend; alternatively consumers over‐estimated their income expectations during the 1980s, and subsequently revised them down very sharply. This paper attempts to distinguish between these explanations by estimating a consumption function which is explicitly &dquo;forward‐looking&dquo;. It finds evidence of instability both in the process of generating income expectations and also in the behaviour of consumers conditional on those expectations. Contact NIESR if copy required

Date: 1993-05
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:38

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