Understanding Consumption (Clarendon Lectures in Economics)

Contents......Page 12
1: Theoretical Foundations......Page 16
1.1 A simple model of intertemporal choice and the life cycle......Page 17
Many periods and the life cycle......Page 18
Lifetime consumption profiles......Page 20
1.2 On intertemporal preferences......Page 21
Consumption as an aggregate of commodities......Page 22
Intertemporal preferences and components of consumption......Page 25
Intertemporally consistent choices......Page 27
Time and the structure of preferences......Page 30
Uncertainty, additivity and expected utility......Page 33
1.3 Intertemporal choice......Page 36
Risky assets and intertemporal optimality......Page 37
The evolution of consumption......Page 40
Consumption evolution with temporal dependence......Page 44
Consumption, insurance, and complete markets......Page 49
1.4 On the aggregation of individual behavior......Page 52
2: Consumption, Growth, and Interest......Page 59
The stripped-down life-cycle model......Page 60
Complications to the basic model......Page 62
The empirical evidence......Page 64
Contradictory evidence?......Page 67
Growth and the age profile of consumption......Page 68
Does consumption track income too closely?......Page 71
2.2 Saving and interest rates......Page 74
Traditional analyses of saving and interest......Page 75
Interest rates and intertemporal substitution......Page 78
Representative agents and intertemporal substitution......Page 80
Intertemporal substitution and aggregation over consumers......Page 85
3: Consumption and Permanent Income......Page 91
Econometric consumption functions......Page 93
The treatment of expectations......Page 94
3.1 A formal version of the permanent income hypothesis......Page 95
Consumption and permanent income......Page 96
The PIH and the martingale property of consumption......Page 98
Forming expectations about income......Page 99
Flavin\'s tests for excess sensitivity......Page 102
Excess sensitivity and non-stationary income......Page 107
Excess sensitivity and the timing of consumption......Page 111
Excess sensitivity, durability, and habits......Page 114
3.3 Consumption and permanent income: a first summary......Page 116
4: The Volatility of Consumption......Page 119
Forecasting non-stationary income......Page 120
A historical digression......Page 123
Difference-stationary and trend-stationary income......Page 125
4.2 Is consumption too smooth?......Page 127
A non-parametric estimate of income persistence......Page 128
Estimating the persistence of labor income......Page 130
Measuring the persistence of consumption......Page 132
Excess smoothness: a summary......Page 134
4.3 Superior information, smoothness, and sensitivity......Page 137
Saving, consumption, and income......Page 138
Superior information......Page 140
A bivariate model of saving and income......Page 142
Other insights from the bivariate approach......Page 147
4.4 The volatility of consumption: a summary......Page 148
5: Macroeconomics and Microeconomics......Page 151
General problems of data and methodology......Page 152
Hall and Mishkin\'s study......Page 155
Reinterpretations: measurement error......Page 159
Reinterpretations: time-series versus cross-sections......Page 161
5.2 More microeconomic studies of intertemporal choice......Page 163
Further evidence from the PSID......Page 164
Evidence from the Consumer Expenditure Survey......Page 168
Other tests: the US, Italy, Japan, Norway, and Ivory Coast......Page 170
A tentative summary......Page 175
5.3 Consumption interactions between households......Page 178
5.4 The reconciliation of micro and macro evidence......Page 182
Aggregation with finite lives......Page 183
Individual households and aggregate information......Page 186
5.5 Macroeconomics and microeconomics: a summary......Page 190
6.1 Precautionary saving......Page 192
An approximation and a special case......Page 194
Computing consumption without certainty equivalence......Page 195
Complications: autocorrelation and growth......Page 202
The evolution of consumption with precautionary saving......Page 204
Why is precautionary saving important?......Page 206
6.2 Liquidity constraints......Page 209
Theoretical arguments for credit constraints......Page 210
Assets as a buffer stock......Page 211
Serially correlated incomes......Page 218
Aggregation with liquidity constraints......Page 221
6.3 Precautionary saving versus liquidity constraints......Page 227
7: Understanding Consumption......Page 229
Bibliography......Page 237
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Z......Page 251
C......Page 252
F......Page 253
K......Page 254
P......Page 255
S......Page 256
W......Page 257