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Showing papers on "Consumption (economics) published in 1992"


Journal ArticleDOI
TL;DR: In this paper, a two-country real business cycle model can account simultaneously for domestic and international aspects of business cycles, and the most striking discrepancy concerns the correlations of consumption and output across countries.
Abstract: We ask whether a two-country real business cycle model can account simultaneously for domestic and international aspects of business cycles. With this question in mind, we document a number of discrepancies between theory and data. The most striking discrepancy concerns the correlations of consumption and output across countries. In the data, outputs are generally more highly correlated across countries than consumptions. In the model we see the opposite.

1,484 citations


Journal ArticleDOI
01 Jan 1992
TL;DR: This article showed that consumer pessimism about unemployment explains a substantial part of the recent weakness in consumption and showed that the buffer-stock model of saving can imply a central role for unemployment expectations.
Abstract: As I WRITE, the U.S. economy remains mired in the slowest recovery from any recession in the postwar period. Consumer confidence and consumption spending, in particular, have been exceptionally weak, and the unemployment rate has continued to rise long after many other indicators began to improve. This paper presents evidence that these facts are related, in the sense that consumer pessimism about unemployment explains a substantial part of the recent weakness in consumption. However, neither theoretical consumption models commonly used for macroeconomic research' nor standard macroeconometric forecasting models2 provide a direct role for unemployment expectations in determining current consumption.3 By contrast, this paper shows that the "buffer-stock" model of saving that has evolved from the work of Stephen Zeldes and Angus Deaton and from my previous work can imply a central role for unemployment expectations.4 In the buffer-stock model,

1,053 citations


Journal ArticleDOI
TL;DR: In this article, the authors argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defence and police.
Abstract: financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, which are rival and excludable, or publicly-provided public goods, which are non-rival and nonexcludable, then lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, and are therefore rival but to some extent non-excludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defence and police. The recent literature on endogenous economic growth has provided some insights into why countries grow at different rates over long periods of time. In some of these models, the government's choices of tax rates and expenditure levels influence the long-term growth rates. The present paper discusses these types of fiscal effects within a variety of models that can generate long-term growth endogenously. The models that we consider assume a closed economy and share a common perspective with respect to household choices on consuming and saving. We begin with the standard model of the representative, infinite-lived household, which seeks to maximize overall utility, as given by

1,015 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined the effect of the labor-leisure choice on portfolio and consumption decisions over an individual's life cycle and showed that labor and investment choices are intimately related.

854 citations


Posted Content
TL;DR: In this article, the authors study the business cycle implications of restricting international trade in financial assets, where domestic residents must hold all risky claims to domestic output, trading only noncontingent bonds on the international asset markets.
Abstract: Since the primary role of international financial linkages is to facilitate consumption smoothing in the face of country-specific shocks, the degree of international financial integration should play an important role in the international transmission of business cycles. This paper therefore studies the business cycle implications of restricting international trade in financial assets. The key restriction is that domestic residents must hold all risky claims to domestic output, trading only noncontingent bonds on the international asset markets. We find that restricting asset trade may or may not change the business cycle implications of the model relative to complete markets, depending on the parameterization of the stochastic process for productivity. When there are important differences, these stem largely from differential wealth effects. We also find that restricting asset trade can resolve the chief problem inherent in complete markets models, which is their predictions of too-high consumption correlations and too-low output correlations. When technology follows a random walk process, the restricted asset markets model predicts that cross-country output correlations are positive, and cross-country consumption correlations are smaller than the output correlations, as is typically observed in the data.

650 citations


Journal ArticleDOI
TL;DR: In this paper, the authors study the dynamics of the efficient distribution of consumption in an exchange economy with many consumers, each of whom is subject to private, idiosyncratic taste shocks.
Abstract: This paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers, each of whom is subject to private, idiosyncratic taste shocks. We propose a recursive method for finding feasible allocations that are incentivecompatible and that are Pareto optimal within this set. The method is applied to several parametric examples. We find that in an efficient allocation the degree of inequality continually increases, with a diminishing fraction of the population receiving an increasing fraction of the resources. We discuss the extent to which these allocations can be decentralized via market arrangements. This paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information. The economy we study has a constant endowment flow of a single, non-storable consumption good which is to be allocated each period among a large number of consumers. Each period, these consumers experience unpredictable, idiosyncratic, privately observed taste shocks affecting their marginal utility of current consumption. Efficiency dictates that more resources be allocated to those consumers who, in any given period, have a high marginal utility of current consumption,

493 citations


Posted Content
TL;DR: The authors examined changes in the distribution of income and consumption in the United States during the 1980s using data from the Current Population Survey (income) and Consumer Expenditure Survey (consumption).
Abstract: This paper examines changes in the distribution of income and consumption in the United States during the 1980s. using data from the Current Population Survey (income) and Consumer Expenditure Survey (consumption). We reach three primary conclusions. First. changes in the distribution of consumption parallel changes in the distribution of income. The lowest quintile of the consumption distribution received 0.9 percentage points less of total consumption in 1988 than in 1980; the corresponding decline for income was 0.6 percentage points. Second. broad conclusions concerning recent changes in the consumption distribution are not very sensitive to the exact choice of a measure of family needs. Under a wide variety of alternative household equivalence scales. there is a widening in the consumption distribution in the 1980s. Third. the usc of consumption measures of well-being in place of measures based on current money income docs change conclusions concerning the extent of poverty in the United Stales. Using the official federal poverty thresholds. we find that the overall consumption poverty rate was three percentage points below the income poverty rate in 1988. Comparisons of the poverty rates of the elderly and the non-elderly are substantially affected by the choice of poverty measure. The consumption poverty rare for the elderly was only 60 percent of the rate for adults and one-third of the rate for children in 1988.

366 citations


Journal ArticleDOI
TL;DR: In this paper, a recently developed methodology of the cointegration test is employed to determine whether energy consumption has a long-run equilibrium relationship with the level of income or employment.

351 citations


Book
01 Jan 1992
TL;DR: An account of the detrimental effects of consumption and consumer behaviour on the world's natural environment is given in this article, which discusses the use of resources, pollution, and the distortions created in the economies of both wealthy industrialized nations and Third World countries.
Abstract: An account of the detrimental effects of consumption and consumer behaviour on the world's natural environment. It discusses the use of resources, pollution, and the distortions created in the economies of both wealthy industrialized nations and Third World countries.

326 citations


ReportDOI
TL;DR: This paper examined changes in the distribution of income and consumption in the United States during the 1980s using data from the Current Population Survey (income) and Consumer Expenditure Survey (consumption).
Abstract: This paper examines changes in the distribution of income and consumption in the United States during the 1980s. using data from the Current Population Survey (income) and Consumer Expenditure Survey (consumption). We reach three primary conclusions. First. changes in the distribution of consumption parallel changes in the distribution of income. The lowest quintile of the consumption distribution received 0.9 percentage points less of total consumption in 1988 than in 1980; the corresponding decline for income was 0.6 percentage points. Second. broad conclusions concerning recent changes in the consumption distribution are not very sensitive to the exact choice of a measure of family needs. Under a wide variety of alternative household equivalence scales. there is a widening in the consumption distribution in the 1980s. Third. the usc of consumption measures of well-being in place of measures based on current money income docs change conclusions concerning the extent of poverty in the United Stales. Using the official federal poverty thresholds. we find that the overall consumption poverty rate was three percentage points below the income poverty rate in 1988. Comparisons of the poverty rates of the elderly and the non-elderly are substantially affected by the choice of poverty measure. The consumption poverty rare for the elderly was only 60 percent of the rate for adults and one-third of the rate for children in 1988.

301 citations


Posted Content
TL;DR: In this paper, the second-best framework of optimal taxation is used to analyze the optimal provision of clean and dirty public goods in the context of a second best framework of environmental and tax policies.
Abstract: Environmental and tax policies and the optimal provision of clean and dirty public goods are analysed within the context of a second-best framework of optimal taxation. Households consume both clean and dirty commodities. Degradation of the natural environment occurs due to the consumption of dirty private and public goods, but can be offset when the government engages in abatement activities. The `double dividend' hypothesis, i.e. raise the dirt tax and reduce the labour tax in order to enhance both environmental quality and employment, fails. Increased environmental concern implies a higher dirt tax, a lower tax on labour, less employment and economic activity and a cleaner environment. If the elasticity of substitution between private consumption commodities and leisure is large, and that between clean and dirty goods is small, public consumption expands while private consumption contracts. Otherwise, public consumption falls.

Book ChapterDOI
01 Jan 1992
TL;DR: In this paper, the authors describe the currency devaluation in developing countries and propose an elasticity approach focusing on the substitution among commodities, both in consumption and in production induced by the relative price changes wrought by the devaluation.
Abstract: Publisher Summary This chapter describes the currency devaluation in developing countries. In analyzing devaluation, the exact nature of the initial disequilibrium is important and much analysis misleads by its focus on economies that are assumed to be in equilibrium at the moment of devaluation. The elasticities approach focuses on the substitution among commodities, both in consumption and in production induced by the relative price changes wrought by the devaluation. The principal relative-price change is between goods, whether imported or exported, whose price is strongly influenced by conditions in the world market, and those home goods and services that are not readily traded. For a small country, it can be assumed that the prices in domestic currency of foreign-trade goods will rise by the amount of devaluation. This rise will divert purchases out of the existing income to nontraded goods and services, thereby reducing domestic demand for imports and for export goods, releasing the latter for sale abroad.

Posted Content
TL;DR: In this article, the authors developed and tested a model of the effects of perceived consumption visibility and superordinate group influence on new product intention formation and found that perceived visibility of consumption significantly affects consumers' predictions of normative outcomes (i.e., social approval from referents).
Abstract: The social context of new product adoption behavior is a key aspect of the diffusion of innovations. Yet little is known about the process by which social contextual factors influence individual adoption decisions. This research develops and tests a model of the effects of perceived consumption visibility and superordinate group influence on new product intention formation. A structural equation model is used in an experimental design to provide a comprehensive view of variable interdependencies and to incorporate measurement error. Key findings indicate that (1) perceived visibility of consumption significantly affects consumers' predictions of normative outcomes (i.e., social approval from referents) and (2) superordinate group influence has a direct effect on consumers' perceptions of consumption visibility and expectations of both personal (i.e., intrinsically valued product benefits) and normative outcomes from early adoption. The results have important implications for understanding the role of consumption symbols as mechanisms for social differentiation and integration.

Journal ArticleDOI
TL;DR: In this paper, the authors consider the theory of consumption under uncertainty when there is no or limited borrowing, the case where some borrowing is allowed is also examined, and the results suggest that "hump" lifecycle saving is not likely to be a very important generator of wealth in LDCs and provide further evidence on the limited role of credit markets.
Abstract: Some ways in which farmers in LDCs can protect their living standards against fluctuations in income are discussed After considering the theory of consumption under uncertainty when there is no or limited borrowing, the case where some borrowing is allowed is also examined Empirical evidence from some LDCs is used to look at (i) household borrowing and lending, their importance and timing, and their role in smoothing consumption, and (ii) the life-cycle behavior of consumption and income The results suggest that 'hump" lifecycle saving is not likely to be a very important generator of wealth in LDCs and provide further evidence on the limited role of credit markets

Journal ArticleDOI
TL;DR: In this article, the authors developed and tested a model of the effects of perceived consumption visibility and superordinate group influence on new product intention formation and found that perceived visibility of consumption significantly affects consumers' predictions of normative outcomes (i.e., social approval from referents).
Abstract: The social context of new product adoption behavior is a key aspect of the diffusion of innovations. Yet little is known about the process by which social contextual factors influence individual adoption decisions. This research develops and tests a model of the effects of perceived consumption visibility and superordinate group influence on new product intention formation. A structural equation model is used in an experimental design to provide a comprehensive view of variable interdependencies and to incorporate measurement error. Key findings indicate that (1) perceived visibility of consumption significantly affects consumers' predictions of normative outcomes (i.e., social approval from referents) and (2) superordinate group influence has a direct effect on consumers' perceptions of consumption visibility and expectations of both personal (i.e., intrinsically valued product benefits) and normative outcomes from early adoption. The results have important implications for understanding the role of consumption symbols as mechanisms for social differentiation and integration.

Journal ArticleDOI
TL;DR: In this paper, the authors studied the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model and provided counterexamples to existing claims in the literature.

Posted Content
TL;DR: In this paper, a fixed-factor neoclassical model with traded and non-traded goods is proposed to explain the near random walk behavior of real exchange rates, and the model is applied to the yen/dollar exchange rate over the floating rate period.
Abstract: Conventional explanations of the near random walk behavior of real exchange rates rely on near random walk behavior in the underlying fundamentals (e.g.. tastes and technology). The present paper offers an alternative rationale, based on a fixed-factor neoclassical model with traded and non-traded goods. The basic idea is that with open capital markets, agents can smooth their consumption of tradeables in the face of transitory traded goods productivity shocks. Agents cannot smooth non-traded goods productivity shocks, but if these are relatively small (as is often argued to be the case) then traded goods consumption smoothing will lead to smoothing of the intra-temporal price of traded and non-traded goods. The (near) random walk implications of the model for the real exchange rate are in stark contrast to the empirical predictions of the classic Balassa-Samuelson model. The paper applies the model to the yen/dollar exchange rate over the floating rate period.

Journal ArticleDOI
TL;DR: In this paper, the authors use the common perspective provided by the neoclassical growth model to evaluate the size of the distortions associated with different monetary and fiscal policies designed to finance a given sequence of government expenditures.

01 Jan 1992
TL;DR: In this paper, the authors developed a two-sector overlapping-generations model to characterize the dynamical system globally and establish sufficient conditions for the existence of a globally unique perfect-foresight equilibrium.
Abstract: This paper develops a two-sector overlapping-generations model. It characterizes the dynamical system globally and establishes sufficient conditions for the existence of a globally unique perfect-foresight equilibrium. The paper provides therefore a useful framework for global dynamic analysis of phenomena whose modeling requires a multidimensional commodity space. The analysis demonstrates that gross substitutability in consumption is not sufficient to ensure the determinacy of equilibrium in this production economy. However, if in addition the investment good is capital intensive and second period consumption of two-period-lived individuals is a normal good, then the perfectforesight equilibrium is globally unique. If the consumption good is capital intensive, global uniqueness does not hold despite the existence of gross substitutability and normality in consumption. The paper establishes in this case sufficient conditions for local determinacy, local indeterminacy, and global indeterminacy.

Journal ArticleDOI
TL;DR: In this article, the authors examined the welfare cost of inflation in an economy where agents hold money in order to smooth consumption in the face of income variability for which there is no insurance.

ReportDOI
TL;DR: In this article, a fixed factor neoclassical model with traded and non-traded goods is proposed to explain the near random walk behavior of real exchange rates, and the model is applied to the yen/dollar exchange rate over the floating rate period.
Abstract: Conventional explanations of the near random walk behavior of real exchange rates rely on near random walk behavior in the underlying fundamentals (e.g., tastes and technology). The present paper offers an alternative rationale, based on a fixed factor neoclassical model with traded and nontraded goods. The basic idea is that with open capital markets, agents can smooth their consumption of tradeables in the face of transitory traded goods productivity shocks. Agents cannot smooth nontraded goods productivity shocks, but if these are relatively small (as is often argued to be the case) then traded goods consumption smoothing will lead to smoothing of the intra-temporal price of traded and nontraded goods. The (near) random walk implications of the model for the real exchange rate are in stark contrast to the empirical predictions of the classic Balassa-Samuelson model. The paper applies the model to the yen/dollar exchange rate over the floating rate period.


Journal ArticleDOI
TL;DR: In this article, the authors examined the effect of seasonal adjustment on asset pricing using not seasonally adjusted aggregate consumption data and found evidence against models with time-separable preferences, even when the models incorporate seasonality and allow seasonal heteroskedasticity.
Abstract: Most of the evidence on consumption-based asset pricing is based on seasonally adjusted consumption data. The consumption-based models have not worked well for explaining asset returns, but with seasonally adjusted data there are reasons to expect spurious rejections of the models. This paper examines asset pricing models using not seasonally adjusted aggregate consumption data. We find evidence against models with time-separable preferences, even when the models incorporate seasonality and allow seasonal heteroskedasticity. A model that uses not seasonally adjusted consumption data and nonseparable preferences with seasonal effects works better according to several criteria. The parameter estimates imply a form of seasonal habit persistence in aggregate consumption expenditures. STUDIES OF CONSUMPTION-BASED asset pricing have typically used data smoothed with the X-11 seasonal-adjustment program. The seasonally adjusted data are weighted averages of past and (in revised data) future expenditures. Such data smoothing creates potential problems. The future expenditures which X-11 includes in the current period data cannot provide utility in the current period. Obviously, one does not purchase goods at seasonally adjusted prices. Furthermore, seasonal adjustment can induce spurious correlation between the error terms of a model and past values of the variables, leading to bias and erroneous inferences (Wallis (1974)). The effect of seasonal adjustment on the asset pricing evidence has received only limited attention in the literature. Miron (1986) extended the seminal work of Hansen and Singleton (1982) to incorporate seasonal "taste shocks." English, Miron and Wilcox (1989) rejected Miron's model using not seasonally adjusted data. However, they studied only a single asset, which provides no evidence about the effects of seasonality on excess returns or risk premiums. Furthermore, they mistakenly used a Treasury bill discount rate as their return.

Journal ArticleDOI
TL;DR: In this paper, a two-country real business cycle model with Arrow-Debreu preferences is presented, where preferences are not separable between consumption and labor supply, and the model allows for fluctuations in labor supply in equilibrium and generates correlations between national consumption rates which are close to some of those observed in historical data.


Journal ArticleDOI
TL;DR: In this article, the authors examined the impact of foreign aid on the behavior of the recipient countries in South and Southeast Asia and found that aid does affect consumption, investment and taxation of these countries.

Journal ArticleDOI
Faye Duchin1
TL;DR: The major advances that have been made in the last decade in the extension of input-output economics to address increasingly complex questions are described, notably the fully dynamic physical/price/income model and the engineering/input-output data base.
Abstract: Industrial ecology will need to develop fundamentally new approaches to reducing, reusing, and recycling wastes. Industrial ecology will also require an analytic framework for examining the implications for the economic system as a whole of each potential web of industrial changes. A suitable framework is furnished by structural economics, which situates the economy within the physical world. This approach is based on dynamic analysis rather than static concepts of equilibrium, and optimization assumptions are used selectively rather than as the general solution mechanism. Input-output economics, an important formal model within structural economics, can trace the stocks and flows of energy and other materials from extraction through production and consumption to recycling or disposal. An input-output computation, including wastes, is presented; it illustrates the separate but integrated analysis of physical stocks and flows and of prices and costs. This paper also describes the major advances that have been made in the last decade in the extension of input-output economics to address increasingly complex questions, notably the fully dynamic physical/price/income model and the engineering/input-output data base. Economists need to be able to assess the costs of cleaning up and to develop incentive schemes to increase the likelihood this will happen. To do this, economists need to take on the difficult "how" questions that concern industrial ecologists since the cost, and indeed the wider implications, of cleaning up depends upon how it is done. Structural economics, and modern input-output models and data bases, in particular, can help meet this challenge.

Journal ArticleDOI
TL;DR: In this paper, a theoretical model of the interaction of financial and housing markets and forward looking agents is developed and the effects of financial liberalisation in the model are analysed and evidence from the U.S. and U.K. is presented.

Journal ArticleDOI
TL;DR: In this paper, a logically consistent method for decomposing a change in industrial energy consumption into the effects of three factors (structural change, energy intensity and output level) is presented.

Journal ArticleDOI
TL;DR: In this article, a dynamic demand model for cigarettes based on panel data from 46 American states over the period 1963 to 1988 is presented, where the authors show some of the pitfalls of studies that rely on a time series regression of a specific state, or a cross-section regression for a given year.