Author: Siobhán LuceyPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Essays on Consumption, Excess Sensitivity, and Income Uncertainty
Author: Siobhán LuceyEssays on Liquidity Constraints, Aggregation, and the Permanent-income Hypothesis
Author: Xiaonian XuEssays on Behavioral Economics and Macroeconomics
Author: Chen Lian (Ph. D.)Publisher:
ISBN:
Category :
Languages : en
Pages : 302
Book Description
This thesis consists of three chapters in behavioral economics and macroeconomics. In the first chapter, I develop an approach, which I term narrow thinking, to break the decision maker's ability to perfectly coordinate her multiple decisions. For a narrow thinker, different decisions are based on different, non-nested, information. I recast this individual decision problem as multiple selves playing an incomplete-information game. The narrow thinker then makes each decision with imperfect knowledge of the other decisions. The friction effectively attenuates the interaction across decisions. Narrow thinking then provides a model of narrow bracketing without directly imposing that each decision is made in isolation. The main application is that narrow thinking generates smooth mental accounting, without requiring the decision maker to have explicit budgets. My approach also leads to unique predictions about what drives the degree of mental accounting behavior. Depending on the environment, narrow thinking can translate into either over- or under-reaction relative to the frictionless benchmark. In the second chapter, I am motivated by the fact that consumers have difficulty tracking their total wealth, or keeping it at the front of their minds when making consumption and saving decisions. In this chapter, I show how such imperfect perception of wealth can explain several key deviations of consumption behavior from the permanent income hypothesis, including: excess sensitivity to current income, smaller MPCs out of wealth than out of current income, and excess discounting of future income. Importantly, my approach does not rely on liquidity constraints and can explain the empirical evidence on high-liquidity consumers' deviations from the permanent income hypothesis. I further provide an interpretation of the model in which the consumer has separate mental accounts for her current income and her wealth. Thus, the consumer exhibits behavior similar to a two-asset model, in a one-asset context without borrowing constraints. The friction can be quantitatively important in explaining MPCs, and has substantive macro implications for monetary and redistributive policy. Methodologically, the paper develops a tractable method for incorporating imperfect perception of the endogenous state into an otherwise standard Markov decision problem. In the third chapter (joint with George-Marios Angeletos), we turn to the classic macroeconomics question about how the economy responds to news about future policies or future fundamentals. Standard practice assumes that agents have common knowledge of such news and face no uncertainty about how others will respond. Relaxing this assumption attenuates the general-equilibrium effects of news and rationalizes a form of myopia at the aggregate level. We establish these insights within a class of games which nests, but is not limited to, the New Keynesian model. Our results help resolve the forward-guidance puzzle, offer a rationale for the front-loading of fiscal stimuli, and illustrate more broadly the fragility of predictions that rest on long series of forward-looking feedback loops. JEL Codes D90, E50, E90.
Excess Sensitivity of Consumption to Current Income
Author: Marjorie FlavinPublisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 50
Book Description
Almost all of the recent empirical tests of the rational expectations - permanent income hypothesis (RE-PIH) have rejected the hypothesis. The null hypothesis in this empirical literature typically consists of the joint hypothesis that 1) agents' expectations are formed rationally, 2) desired consumption is determined by permanent income, and 3) capital markets are"perfect" in the sense that agents can lend or borrow against expected future income at the same interest rate. This paper attempts to determine whether the excess sensitivity of consumption to current income can be attributed to a failure of the third component of the joint hypothesis -- the assumption of "perfect" capital markets -- as opposed to a failure of one or both of the first two assumptions. The paper examines, as a specific alternative to the PIH, a simple "Keynesian" consumption function in which the behavioral MPC out of transitory income is different from zero. Interpreting the unemployment rate as a proxy for the proportion of the population subject to liquidity constraints, the paper uses a generalized version of the econometric model in my earlier paper(1981) to conduct a specification test of the "Keynesian" consumption function. The finding that the estimate of the MPC out of transitory income is dramatically affected, in both magnitude and statistical significance, by the inclusion of the proxy for liquidity constraints suggests that liquidity constraints are an important part of the explanation of the observed excess sensitivity of consumption to current income.
Consumption Adjustment Under Changing Income Uncertainty
Author: Joon-Ho HahmPublisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 40
Book Description
Essays on Consumption and Asset Pricing Puzzles
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
This thesis contributes to the literature on the consumption-portfolio choice under uncertainty and is motivated by several empirical failures of the standard consumption-based capital asset pricing model (CCAPM). This canonical model has proven disappointing empirically and has even been questioned whether it is theoretically valuable and practically useful even if it is in some sense the only model we have. The frustration is due to that the model performs no better in practice and generates some well-known consumption puzzles and asset pricing puzzles. The purpose of the thesis is to reexamine these puzzles and then to resolve them. After the debate of Hansen and Singleton (1983) and Hall (1988), the estimates of the elasticity of intertemporal substitution (EIS) of consumption in a representative agent model have not resulted in any consensus. Based on this observation, the first chapter of this thesis is focused on resolving the elasticity puzzle or the unresponsiveness to interest rates. We propose a new theoretical and empirical perspective on the relationship between consumption growth and asset returns. In the spirit of Hansen and Singleton (1983), we demonstrate that observed growth rate of consumption responds not only to a specific asset return but also to other asset returns. Empirically, US postwar quarterly data are used to fit the regression model derived in the chapter, and the sample period is 1953Q2-2001Q2. Empirical results show that the EIS is greater than 0.1, the maximum value considered possible by Hall (1988). Accordingly, we argue that there is no elasticity puzzle in the standard representative agent model. The second chapter provides an explanation for the puzzle of excess sensitivity of consumption to expected income proposed by Flavin (1981). We exploit consumer's superior information (i.e., windfalls in investments and in income) to integrate the consumption Euler equations into a generalized Euler equation. The implications emerging f.
Essays on Ricardian Equivalence
Author: Artidiatun AdjiPublisher:
ISBN:
Category :
Languages : en
Pages : 345
Book Description
Due to low salaries in the formal sector, employees have been engaged in moonlighting activities, mostly in the form of self-employment (e.g., opening retail stores or services). This phenomenon may help to explain why private credit---which amounts to 29 percent of GDP---fails to explain consumption behavior. Most loans are made for investment rather than for consumption.
Consumption Growth and Excess Sensitivity to Income
Author: Orazio P. AttanasioPublisher:
ISBN:
Category : Consumer behaviour
Languages : en
Pages : 41
Book Description
Consumption Growth and Excess Sensitivity to Income: Evidence from U.S. Micro Data
Author: Is Consumption Too Smooth?
Author: John Y. CampbellPublisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 38
Book Description