Working Paper: NBER ID: w13876
Authors: Christopher D. Carroll; Jiri Slacalek; Martin Sommer
Abstract: We estimate the degree of 'stickiness' in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness parameter of about 0.7 on average across countries. The sticky-consumption-growth model outperforms the random walk model of Hall (1978), and typically fits the data better than the popular Campbell and Mankiw (1989) model. In several countries, the sticky-consumption-growth and Campbell-Mankiw models work about equally well.
Keywords: sticky consumption growth; habit formation; aggregate consumption; advanced economies
JEL Codes: E21; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Measurement error (C20) | Consumption growth (E20) |
| Transitory fluctuations in consumption growth (D15) | Consumption growth (E20) |
| Past consumption growth (E21) | Current consumption growth (F62) |
| Temporary variations (E32) | Consumption growth (E20) |
| True consumption growth (E21) | Consumption growth (E20) |
| Consumption habits or sticky expectations (D12) | Consumption growth (E20) |