The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis

Gerdie Everaert and Lorenzo Pozzi
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Lorenzo Pozzi: Department of Economics, Erasmus University Rotterdam

No 10-049/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper examines the sources of stickiness in aggregate consumption growth. We first derive a dynamic consumption equation which encompasses many recent developments in consumption theory: habit formation, intertemporal substitution effects, consumption based on current income, and non-separabilities between private consumption and both hours worked and government consumption.Next, we estimate this dynamic consumption equation for a panel of 15 OECD countries over the period 1972-2007 taking into account endogeneity issues and error cross-sectional dependence. To this end, we develop a generalised method of moments version of the common correlated effects pooled estimator and demonstrate its small sample behaviour using Monte Carlo simulations. The estimation results support the labour-consumption complementarity hypothesis but not the other forms of stickiness.

Keywords: Sticky Consumption; Dynamic Panel; Cross-Sectional Dependence (search for similar items in EconPapers)
JEL-codes: C23 E21 (search for similar items in EconPapers)
Date: 2010-05-12, Revised 2011-10-14
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Related works:
Working Paper: The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100049

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