Working Paper: CEPR ID: DP1289
Authors: Tamim Bayoumi
Abstract: A method of testing the relative importance for consumption of full insurance behaviour and changes in income is proposed and estimated using data across Canadian provinces. The focus of the estimation is less on whether or not the full insurance model can be rejected than on how much each of these hypotheses can contribute to explaining overall variation in consumption. Both types of behaviour are found to be statistically significant, but the full insurance model is found to explain considerably more of the growth in consumption than changes in income do
Keywords: consumption; optimization; liquidity constraints
JEL Codes: D12; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| full insurance behavior (G52) | consumption variation (E21) |
| income changes (D31) | consumption variation (E21) |
| full insurance behavior (G52) | impact of income changes on consumption variation (D11) |