English, Article, Journal or magazine article edition: Consumption Growth Parallels Income Growth: Some New Evidence Chris Carroll; Lawrence H. Summers

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Bookmark: http://trove.nla.gov.au/version/141384
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Consumption Growth Parallels Income Growth: Some New Evidence
Author
  • Chris Carroll
  • Lawrence H. Summers
Physical Description
  • preprint
Notes
  • This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and crosssection data on consumption and income. There is clear evidence tha: consumption and income gr:wth are much more closely linked than wOu be predicted by these theories. it appears that consumption smoothing takes place over periods cf several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income corrpcnent is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer apprcaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.
  • RePEc:nbr:nberwo:3090
Language
  • English
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