SFB 303 Discussion Paper No. A-456

Author: Hildenbrand, Werner, and Alois Kneip

Title: Aggregate Consumers' Expenditure and Income

Abstract: The following question is analyzed: under what circumstances can one establish a stable (i.e., time invariant) functional relationship which links aggregate consumption in period t with aggregate income in period t and another "determinants" of consumtion that refer to periods prior to period t and can be derived from observable distributions of households' characteristics? The basic hypothesis on which our model is built is the hypothesis of a "structurally stable" evolution. This hypothesis has good empirical support. The proposed dynamic model of consumers' expenditure implies the observed regularities of aggregate consumption and income data such as the high linear association of aggregate income and consumption for short-run time series. The compatibility of our model with empirical data and its predictiv power is discussed using time-series of cross-section data, the U.K. Family Expenditure Survey from 1968 to 84.

Keywords: Aggregation, consumption function, structural stability, prediction

JEL-Classification-Number: B41, C14, D12, E21

Creation-Date: October 1994
URL: ../1994/a/bonnsfa456.pdf
Graphiken: ../1994/a/bonnsfa456gr.zip

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