Showing papers on "Consumption (economics) published in 1987"

Stochastic Trends and Economic Fluctuations

Abstract: Are business cycles mainly the result of permanent shocks to productivity? This paper uses a long-run restriction implied by a large class of real-business-cycle models -identifying permanent productivity shocks as shocks to the common stochastic trend in output, consumption, and investment -to provide new evidence on this question. Econometric tests indicate that this common-stochastic-trend / cointegration implication is consistent with postwar U.S. data. However, in systems with nominal variables, the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business-cycle variability in output, consumption, and investment. (JEL E32, C32) A central, surprising, and controversial result of some current research on real business cycles is the claim that a common stochastic trend-the cumulative effect of permanent shocks to productivity-underlies the bulk of economic fluctuations. If confirmed, this finding would imply that many other forces have been relatively unimportant over historical business cycles, including the monetary and fiscal policy shocks stressed in traditional macroeconomic analysis. This paper shows that the hypothesis of a common stochastic productivity trend has a set of econometric implications that allows us to test for its presence, measure its importance, and extract estimates of its realized value. Applying these procedures to consumption, investment, and output for the postwar United States, we find results that both support and contradict this claim in the real-businesscycle literature. The U.S. data are consistent with the presence of a common

Agricultural household models : extensions, applications, and policy

Abstract: This book presents the basic model of an agricultural household that underlies most of the case studies undertaken so far. The model assumes that households are price-takers and is therefore recursive. The decisions modeled include those affecting production and the demand for inputs and those affecting consumption and the supply of labor. Comparative results on selected elasticities are presented for a number of economies. The empirical significance of the approach is demonstrated in a comparison of models that treat production and consumption decisions separately and those in which the decisionmaking process is recursive. The book summarizes the implications of agricultural pricing policy for the welfare of farm households, marketed surplus, the demand for nonagricultural goods and services, the rural labor market, budget revenues, and foreign exchange earnings. In addition, it is shown that the basic model can be extended in order to explore the effects of government policy on crop composition, nutritional status, health, saving, and investment and to provide a more comprehensive analysis of the effects on budget revenues and foreign exchange earnings. Methodological topics, primarily the data requirements of the basic model and its extensions, along with aggregation, market interaction, uncertainty, and market imperfections are discussed. The most important methodological issues - the question of the recursive property of these models - is also discussed.

Optimal portfolio and consumption decisions for a “small investor” on a finite horizon

Abstract: A general consumption/investment problem is considered for an agent whose actions cannot affect the market prices, and who strives to maximize total expected discounted utility of both consumption ...

Gasoline consumption and cities - a comparison of u.s. cities with a global survey and some implications

Abstract: Gasoline consumption per capita in ten large US cities is found to vary by up to 40 per cent, due primarily to land use and transport planning factors, rather than price or income variations. The same patterns, though more extreme, are seen in a global sample of thirty two cities where average gasoline consumption in US cities was nearly twice as much as in Australian cities, four times higher than european cities and ten times as much as asian cities. Allowing for gasoline price, income and vehicle efficiency explains only half of these differences. Physical planning and transport planning policies are suggested for reducing gasoline consumption (a).

Privatization: The Key to Better Government

Abstract: Part 1 The background for privatization: introduction - pressures for privatization, overview the growth of government - the size of government why government grows. Part 2 The theory of privatization: basic characteristics of goods and services - exclusion, consumption, classifying goods and services, private goods, common-pool goods, toll goods, collective goods, the growth of collective and common-pool goods alternative arrangements for providing goods and services - providing, arranging and producing services, service arrangements, multiple, hybrid, and partial arrangements, privatization an analysis and comparison of alternative arrangements - the nature of goods and the choice of arrangements, factors in evaluating arrangements, comparison of arrangements, characteristics of the privatization alternatives. Part 3 Privatization in practice: applications in practice: applications in physical and commercial services - solid-waste management, street services, transportation, water supply and treatment, electric power, communications, commercial and administrative activities, state-owned property, state-owned enterprises, miscellaneous and prospective applications applications in protective and human services - public safety, national defense, health care, housing and urban development, social services, education, recreation and leisure. Part 4 Toward successful privatization: how to privatize - load shedding, load shedding by denationalization, limited-government arrangements, user charges, competition, contracting for services problems with privatization - problems that arise from the concept, necessary conditions for successful privatization, implementation obstacles.

Permanent Income, Current Income, and Consumption

Abstract: This paper reexamines the consistency of the permanent income hypothesis with aggregate, post-war, United States data. The permanent income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be 40 or 50 percent, indicating a substantial departure from the permanent income hypothesis. This finding is robust to various statistical problems that have plagued previous work, such as time aggregation, and cannot be easily explained by appealing to changes in the real interest rate or to non-separabilities in the utility function.

Risky Income, Life Cycle Consumption, and Precautionary Savings

Abstract: This paper argues that precautionary savings against uncertain income comprise a large fraction of aggregate savings. A closed-form approximation for life cycle consumption subject to uncertain interest rates and earnings is derived by taking a second-order Taylor-Series approximation of the Euler equations. Using empirical measures of income uncertainty, I find that precautionary savings comprises up to 56 percent of aggregate life cycle savings. The derived expression for n-period optimal consumption is easily implemented for econometric estimation, and accords well with the exact numerical solution. Empirical comparisons of savings patterns among occupational groups using the Consumer Expenditure Survey contradict the predictions of the life cycle model. Riskier occupations, such as the self-employed and salespersons, save less than other occupations, although this finding may in part reflect unobservable differences in risk aversion among occupations.

Demographic consequences of the Great Leap Forward in Chinas provinces.

Abstract: This article examines the demographic consequences of Chinas Great Leap Forward--the massive and ultimately unsuccessful drive during 1958-62 to leap ahead in production by mobilizing society and reorganizing the peasantry into large-scale communes. Severe excess mortality and massive fertility shortfalls are documented but with wide variations among provinces and between rural and urban areas. The demographic crisis was caused in the first instance by nationwide food shortages. However these are attributable to declines in grain production entitlement failure and changes in consumption patterns all of which are ultimately traceable to political and economic policies connected with the Great Leap. (SUMMARY IN FRE AND SPA) (EXCERPT)

Household Consumption of Food-Away-From-Home: Total Expenditure and by Type of Food Facility

Abstract: Consistent with prior expectations based on household production theory, household income, time value, size and composition, and the environment in which production and consumption occurred were all important determinants of total household expenditures on food-away-from-home. However, the importance of these factors varied by type of food facility: conventional restaurants, fast-food facilities, and other commercial establishments. Decomposition of the tobit elasticities indicated the differential importance of market participation effects of household size, income, and time value by level of the variable and by type of food facility.

Effects of the Changing U.S. Age Distribution on Macroeconomic Equations

Abstract: The effects of the changing U.S. age distribution on various macroeconomic equations are examined in this paper. The equations include consumption, money demand, housing investment, and labor force participation equations. Seven age groups are analyzed: 16-19, 20-24, 25-29, 30-39, 40- 54, 55-64, and 65+. There seems to be enough variance in the age distribution data to allow reasonably precise estimates of the effects of a number of age categories on the macro variables. The results show that, other things being equal, age groups 30-39 and 40-54 consume less than average, invest less in housing than average, and demand more money than average. Age group 55-64 consumes more and demands more money. If these estimates are right, they imply, other things being equal, that consumption and housing investment will be negatively affected in the future as more and more baby boomers enter the 30-54 age group. The demand for money will be positively affected. If, as Easterlin argues, the average wage that an age group faces is negatively affected by the percent of the population in that group, then the labor force participation rate of a group should depend on the relative size of the group. If the substitution effect dominates, people in a large group should work less than average, and if the income effect dominates, they should work more than average. The results indicate that the substitution effect dominates for women 25-54 and that the income effect dominates for men 25-54.

Testing the Response of Consumption to Income Changes with (Noisy) Panel Data

Abstract: This paper tests the rational expectations lifecycle model of consumption against (i) a Keynesian model and (ii) the rational expectations lifecycle model with imperfect capital markets. The tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted. The tests allow for measurement error in income. The results reject the Keynesian model and generally support the lifecycle model. But the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained. Measurement error has a strong influence on the relationship between consumption and income.

Effects of the Changing U.S. Age Distribution on Macroeconomic Equations

Abstract: The effects of the changing U.S. age distribution on various macroeconomic equations are examined in this paper. The equations include consumption housing-investment money-demand and labor-force-participation equations. There seems to be enough variance in the age-distribution data to allow reasonably precise estimates of the effects of the age distribution on the macro variables. (EXCERPT)

Estimating the Continuous Time Consumption Based Asset Pricing Model

Abstract: The consumption-based asset-pricing model predicts that excess yields are determined by the market's degree of relative risk aversion and by the covariances of per capita consumption growth with asset returns. Estimation and testing are complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or time average of the consumption flow are available. This article shows how to take account of the effects of time averaging on the covariances. We estimate the model's parameters and test the overidentifying restrictions using six different data sets.

Income and Nutritional Effects of the Commercialization of Agriculture in Southwestern Kenya

Abstract: This 1984-85 study evaluated the effects of cash crop production on agricultural production income and food consumption. It assessed the impact of cash cropping on the health and nutritional status of women and preschoolers in Kenya. This study was unique in its focus on the process through which commercial agriculture may affect household behavior. Data were obtained from a sample of 504 farmers who lived in Nyanza province South Nyanza District southwest Kenya. 139 were sugar farmers. Illness among children and women ranged from 50-70% at any one time. Analysis pertained to a comparison of maize and sugar cropping distribution of income and expenditure energy consumption among subpopulations and the determinants of household food consumption nutritional status and morbidity. The health and sanitation environments were deficient. Sugar cane farmers had 25% higher income than non-sugar farmers but had less area under cultivation as food crops. Returns to land were greater for sugar cane compared to maize due to a lower need for labor and the governments pricing policy. Household calorie consumption but not preschool nutritional status was significantly indirectly affected by the sugarcane outgrowers program. Child health was mostly affected by sanitation and morbidity patterns. Child health status was better in female headed households. Gender determined type of household expenditure. Agricultural contracts should include wives in order to establish the concept of household income. Income payments should be periodic. The outgrowers scheme should be integrated into primary health care delivery.

Nonparametric Tests of Utility Maximization and Weak Separability for Consumption, Leisure and Money

Abstract: Some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer's utility function. This paper contains results from nonparametric tests of these assumptions about consumer behavior. The authors find that quarterly per capita data on consumption goods, le isure, and monetary assets are consistent with utility maximization. Further, consumption goods and leisure meet necessary and sufficient conditions for weak separability. Additionally, one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability. They also test and find no evidence of homothetic prefe rences. Copyright 1987 by MIT Press.

A life-cycle consumption model with liquidity constraints: theory and empirical results

Abstract: A structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 U.S. families. Liquidity constrained families are estimated to constitute 19.4 percent of the population sampled, a group that accounts for 16.7 percent of consumption in the population sampled. In-sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect. Copyright 1987 by The Econometric Society.

Chapter 13 Income maintenance and social insurance

Abstract: Publisher Summary Historically, income maintenance has taken the form of private charity or the poor law. These have been typically uneven in their impact, varying from locality to locality, and have been dependent on the generosity and caprices of donors or public relief officials. In the administration of state support, concern for the cost has been paramount, and there has been a lively sense of the possible disincentive to work. The main objective of income support is the relief of poverty. It has been an intermediate objective rather than an end in itself, for example, to avoid civil unrest. Today, there is considerable disagreement about the proper role of income maintenance, but it remains widely accepted that the abolition of poverty is a central objective. The second approach seeks to reduce the multiple values to a single indicator by taking total expenditure and comparing this with a target level of total outlay. The third approach takes total income as the variable to indicate poverty; and it is this approach that is most commonly employed in the studies of poverty. In considering these three approaches to the indicator of poverty, there are two different conceptions. The first, and perhaps the more usual, is concerned with the standard of living, and it points to the use of total expenditure or the consumption of specific commodities. The second is concerned with rights to a minimum level of resources or the opportunity to consume, even if not exercised.

Tobacco advertising and consumption: evidence of a causal relationship.

Abstract: This paper considers whether there is a causal relationship between advertising and promotion and the consumption of cigarettes. If advertising and promotion increase cigarette consumption, then less than two million new or retained smokers–5.5 percent of smokers who start each year or try to quit (most failing)–alone would justify the annual promotional expenditure of $2 billion. A preponderance of quantitative studies of cigarette advertising suggest a causal relationship with consumption. Other studies show that children are influenced by cigarette advertising. Additionally, there are many individual examples of targeted marketing campaigns being followed by increased consumption within the target market. The evidence supports the hypothesis that cigarette advertising and promotion increase and sustain cigarette consumption. If brand share were the only function of advertising and promotion, as the cigarette manufacturers insist, the industry would lobby vigorously for an ad ban.

The Insensitivity of Consumption to News About Income

Abstract: This paper uses a variance bounds test to see whether consumption is too sensitive to news about income to be consistent with a standard permanent income model, under the maintained hypothesis that income has a unit root. It is found that, if anything, consumption is less sensitive than the model would predict. This implication is robust to the representative consumer having private information about his future income that the econometrician does not have, to wealth shocks, and to transitory consumption. This suggests the importance in future research on the model of allowing for factors that tend to make consumption smooth.

Consumer Response to Continuous-Display Electricity-Use Monitors in a Time-of-Use Pricing Experiment

Abstract: Continuous-display, electricity-use monitors provide more comprehensive electricity cost information than previously considered initiatives. This study analyzes the effect of monitor-provided information on consumers' monthly peak period, off-peak period, and total electricity consumption using an ANCOVA framework. Results indicate that monitoring did not induce conservation but did significantly contribute to shifting electricity use from peak to off-peak periods.