Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153006
Authors: 
Kuismanen, Mika
Pistaferri, Luigi
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 572
Abstract: 
Most of the empirical literature on consumption behaviour over the last decades has focused on estimating Euler equations. However, there is now consensus that data-related problems make this approach unfruitful, especially for answering policy relevant issues. Alternatively, many papers have proposed using the consumption function to forecast behaviour. This paper follows in this tradition, by deriving an analytical consumption function in the presence of intertemporal non-separabilities, "superior information", and income shocks of different nature, both transitory and permanent. The results provide evidence for durability, and show that people are relatively better at forecasting short-term rather than long-term shocks
Subjects: 
Consumption
Durability
habit persistence
panel data
Superior Information
JEL: 
D11
D12
D82
E21
Document Type: 
Working Paper

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