Inter-temporal

Question 1

Flavin (1981)

Answer 1

EXCESS SENSITIVITY OF CONSUMPTION

1. Result - consumption responds to past income changes, implying excess sensitivity of consumption to past information
2. Data – aggregate data
3. Problem – rejection of model using aggregate data could be spurious

Question 2

EXCESS SENSITIVITY OF CONSUMPTION

1. Result - consumption responds to past income changes, implying excess sensitivity of consumption to past information
2. Data – aggregate data
3. Problem – rejection of model using aggregate data could be spurious

Answer 2

Flavin (1981)

Question 3

Evidence for excess sensitivity of consumption

Answer 3

1. Flavin (1981)

2. Campbell and Mankiw (1989)

Question 4

Campbell and Mankiw (1989)

Answer 4

EXCESS SENSITIVITY OF CONSUMPTION

1. Result - evidence supports excess sensitivity of consumption to expected income changes
2. Data - aggregate data
3. Rejected model in which all consumers follow PIH
4. Couldn’t reject model in which ½ consumers followed ‘rule of thumb’ of spending current income

Question 5

EXCESS SENSITIVITY OF CONSUMPTION

1. Result - evidence supports excess sensitivity of consumption to expected income changes
2. Data - aggregate data
3. Rejected model in which all consumers follow PIH
4. Couldn’t reject model in which ½ consumers followed ‘rule of thumb’ of spending current income

Answer 5

Campbell and Mankiw (1989)

Question 6

Evidence for credit constraints

Answer 6

Gross and Souleles (2002)

1. Estimate 2/3rd US population credit constrained from study of responses to automatic increase in credit card limits

Question 7

Gross and Souleles (2002)

Answer 7

Estimate 2/3rd US population credit constrained from study of responses to automatic increase in credit card limits

Question 8

Estimate 2/3rd US population credit constrained from study of responses to automatic increase in credit card limits

Answer 8

Gross and Souleles (2002)

Question 9

Mankiw (1992)

Answer 9

FAILURE OF RICARDIAN EQUIVALENCE

1. US taxes cut in 1992
2. Yet almost 1/2 of consumers used some of the extra take-home pay for additional current consumption

Question 10

Evidence for failure of Ricardian equivalence?

Answer 10

Mankiw (1992)

1. US taxes cut in 1992
2. Yet almost 1/2 of consumers used some of the extra take-home pay for additional current consumption

Question 11

FAILURE OF RICARDIAN EQUIVALENCE

1. US taxes cut in 1992
2. Yet almost 1/2 of consumers used some of the extra take-home pay for additional current consumption

Answer 11

Mankiw (1992)