Explaining Consumption: A Simple Test of Alternative Hypotheses

Bayoumi, Tamim

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Explaining Consumption: A Simple Test of Alternative Hypotheses

IMF Working Paper No. 97/56

29 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written: May 1997

Abstract

A method of testing the relative importance for consumption of risk sharing behavior and changes in current income is proposed and estimated using data across Canadian provinces. The focus of the estimation is less on whether or not the risk sharing model can be rejected than on how much each of these hypotheses can contribute to explaining overall variation in consumption. Both types of behavior are found to be statistically significant, but the risk sharing model is found to explain considerably more of the growth in consumption than does changes in income.

Keywords: Consumption, Risk Sharing, Liquidity Constraints

JEL Classification: D12, E21

Suggested Citation: Suggested Citation

Bayoumi, Tamim, Explaining Consumption: A Simple Test of Alternative Hypotheses (May 1997). IMF Working Paper No. 97/56, Available at SSRN: https://ssrn.com/abstract=882319