An Analysis of U.S. Postwar Consumption and Saving: Part Ii -- Empirical Results

55 Pages Posted: 11 Jan 2001 Last revised: 17 Aug 2022

See all articles by Michael J. Boskin

Michael J. Boskin

Stanford University - The Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER)

Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance

Date Written: June 1988

Abstract

A new empirical analysis of aggregate United States consumption and saving for the period 1947-80 is presented. The model is based on the theory of exact aggregation. It recognizes explicitly that households with different characteristics may be heterogeneous in their behavior and that aggregate behavior may depend on the changing composition of households by characteristics and therefore may not be adequately portrayed by a representative consumer, but otherwise it imposes minimal assumptions on household behavior. The model integrates longitudinal and cross-sectional microeconomic data on household characteristics with the traditional aggregate time-series data. Various hypotheses on consumption, such as age independence, proportionality to wealth, and price independence, are tested , and rejected. Strong evidence of relative price effects and a systematic variation of aggregate consumption with changing age distribution of wealth in the economy is found. Especially important is the substantial estimated difference in the shares of wealth consumed between households headed by persons born prior to and those born after 1939. One important lesson from this study is that modeling the aggregate U.S. economy as a representative consumer may give rise to misleading results.

Suggested Citation

Boskin, Michael J. and Lau, Lawrence J., An Analysis of U.S. Postwar Consumption and Saving: Part Ii -- Empirical Results (June 1988). NBER Working Paper No. w2606, Available at SSRN: https://ssrn.com/abstract=256075

Michael J. Boskin (Contact Author)

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

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National Bureau of Economic Research (NBER)

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Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance ( email )

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HOME PAGE: http://www.igef.cuhk.edu.hk/ljl

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