... For many specifications of preferences, this individual will be constrained to consume less than
his ... 12 Hall and Mishkin's first test for excess sensitivity does not use a Keynesian alterna- tive ...
some previous authors, I allow the family utility function (and thus consumption) to be ...

... can no longer be precisely interpreted as the fraction of agents who consume their current ... We
begin our examination of consumption and real interest rates by maintaining the hypothesis that ...
will then go on to consider a more general model with some rule-of- thumb consumers. ...

... Furthermore, 'excess sensitivity' tests can find either high or low degrees of sensitivity, depending
on the exact ... In the last period of life, the optimal plan is to consume everything, c ... an individual
household as ∆ log Ci,t+1 then the group-mean value of consumption growth across ...

... It dis- plays Flavin's (1981) "excess sensitivity" of consump- tion to income, since consumption
moves more ... no longer be precisely interpreted as the fraction of agents who consume their current ...
income per capita in 1982 dollars, and C, is per capita consumption of nondurables ...

... in behavior between the liquidity-constrained, the myopic or the so-called rule-of-thumb con-
sumers ... that bu is numerically zero in the unrestricted regressions for both measures of
consumption. ... found no signifi- cant difference, both in terms of tests for excess sensitivity and ...

... their current income. In addition to the rule-of-thumb consumption function, several possible ex- ...
lustrates how apparent excess sensitivity arises in the presence of a nonmarket consumption
good. ... The share of market goods in the consumption aggregate is s = 0.63. The ...

... separabilities in the utility function is interesting in its own right and ensures that excess sensitivity
does not ... the effect of unevenly distributed aggregate shocks μ t+1 on the forecast error in
consumption. ... growth E it Δ ln Y it+1 with the subjective expectation of income growth g e i ...

... permanent- income model and on the existence and quantitative impor- tance of "rule of thumb"
consumers ... Moreover, he did not find evidence in favor of excess sensitivity. ... complete, individuals7
marginal rate of substitution of consumption now for future consumption is equated ...

... 1994) splits the sample according to the constraint indicator and tests for excess sensitivity in
Euler ... Income and wealth measures in the PSID are deflated by the price index of personal
consumption expenditures (base year 1982–1984); food expenditures are deflated by the ...

... In particular, we explain how ignoring demographics can lead to apparent excess sensitivity in
the ... samples, if some of them are very noisy and uncorrected with expected income. ... of demographic»
and labour supply variables on the Euler equation for consumption Real interest ...

... to control for the endogeneity of cohort membership, one should estimate a selection equation
jointly with the consumption Euler equation on the ... some insights about the evolution of the
variables over the life-cycle we first regress log consumption and log income on 91 year ...

... this area. • equals labor income divide by nominal consumption expenditure. For the data, =0.77. ...
This contrast with Campbell and Mankiw's (1989) rule-of- thumb hypothesis and shows that excess
sensitivity does not exist. • Statistically, we can not reject the restriction of ...

... To test for excess sensitivity of consumption under changing income uncertainty, we test the null ...
implies that 2 in equation (2.12) represents the share of consumers who consume current income. ...
or less, an increase in income uncertainty in period t leaves consumption in period ...

... Finally, we can test theory restrictions in variousways, including the popular excess-sensitivity
tests. - ... Notes: MA (1).consistent stint dard errors in parenthes. Instruments used are second, third
and fourth lags of consumption growth, income growth, inflation and the real ...

... However, describing rule-of-thumb consumers in the naive way C t = Y t may omit ... The coefficient
on income should then capture both the degree of excess sensitivity of consumption ... all the studies
that introduce housing wealth or housing prices in consumption equations do so ...

... and Mankiw (1989), who suggest the presence of liquidity- constrained households that consume
their labour ... cohort data than on aggregate data (on the basis of an excess sensitivity test to ... If the
cross-sectional distribution ofhousehold consumption was log-normal it would be ...

... excess sensitivity of consumption growth to forecastable income growth, it does not deliver a ...
Rule-of- thumb consumers are not directly influenced by credit availability because they are ...
calibration assumptions next and then describe the household's optimal consumption policy. ...

... Binding constraints will force these agents to consume their current income instead of their
permanent ... the value of indicated by the (average) slope of the true consumption growth equation ...
are less prudent (and less risk averse) than those with less-risky income streams, even if ...

... Section 3 focuses on expected income changes, distinguishing between the traditional excess
sensitivity ... marginal propensity to consume with respect to income shocks, ie, the parameters ϕk .
These ... that is directly derived from the consumption Euler equations (3) and (11). ...