Macroeconomics Commons^™

Three Essays On Consumption Smoothing, Logan James Miller

Graduate Theses and Dissertations

Macroeconomic theory has established that consumption smoothing leads to higher standards of living. A stable consumption path can lead to more stability and less uncertainty between periods of high and low income. However, there is a wide body of literature that shows people do not consistently smooth their consumption when exposed to adverse income shocks. This dissertation uses experimental and empirical methods to better understand the obstacles people face when trying to smooth their consumption over time. It looks to understand the differences in pairs and individuals’ ability to smooth consumption. It also explores how the household’s level of income …

Credit Cards, Credit Utilization, And Consumption, Scott Fulford, Scott Schuh

Economics Faculty Working Papers Series

Credit bureau data show remarkably stable consumer utilization of unsecured debt over the business cycle, life cycle, and individually quarter-to-quarter, despite massive variation in available credit. To explain these new findings, we propose a life-cycle consumption model with heterogeneous preferences, endogenous payment choice, and the option to revolve debt for consumption smoothing. Using diary data to identify payment use, the estimated model matches consumption and credit use at every frequency and suggests that around half the population has an endogenously high marginal propensity to consume. The results suggest understanding credit availability and heterogeneous use may lead to richer counter-cyclical policies.

Improvements To Consumption Prediction: Machine Learning Methods And Novel Features, Ian Kinskey, Glenn Oswald, Charles Mccann, Travis Finch, Anthony Tanaydin

SMU Data Science Review

Current models for predicting personal consumption expenditures (PCE) employ statistical techniques and rely upon traditional economic features. We compare vector autoregression and random forest regression models using traditional economic features as inputs to predict PCE. Additionally, we develop novel features derived from the earnings call transcripts of publicly traded U.S. companies using natural language processing (NLP) techniques. These new features reduce the mean square error (MSE) of the vector autoregression model by 7% and the random forest model by 23%. We find the random forest models outperformed the vector autoregression models, with a MSE reduction of 68%. We conclude the …

Stock Market Wealth Impact On Consumption Expenditure, Ramberto Jr. Sosa Cueto

Applied Economics Theses

The purpose of this thesis is to explain the role of the stock market in determining aggregate consumer behavior. Theoretically, the life-cycle hypothesis is the main link between consumption and wealth. Additionally, a household’s corporate equities holdings form part of that wealth (a small proportion). However, stock market fluctuations account for a significant part of the variation in household wealth, because of the stock prices’ volatility.

In regression models, the estimated relationship between consumption and wealth is commonly positive and statistically significant. The empirical evidence in this paper suggests that the relationship between consumption and wealth is positive and statistically …

Aggregate Consumption And Debt Accumulation: An Empirical Examination Of Us Household Behavior, Yun K. Kim, Mark Setterfield, Yuan Mei

Research Collection School Of Economics

The outbreak of the financial crisis in 2008 witnessed a significant contraction in US consumption spending, as households began deleveraging following a period marked by historically high levels of household borrowing. These events call into question the canonical life-cycle theory of consumption, with its benign view of debt as a neutral instrument of optimal intertemporal expenditure smoothing. This paper draws attention to an alternative, post-Keynesian account of consumption spending in which current income, household borrowing and household indebtedness all affect current consumption. Central to the analysis is an empirical investigation of US consumption spending since the 1950s. The results of …

A Theory Of Aggregate Consumption, Yun K. Kim, Mark Setterfield, Yuan Mei

Research Collection School Of Economics

We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and that the treatment of debt-servicing commitments as a substitute for savings by these households creates the potential for 'sudden stops' in consumption spending (and hence aggregate demand).

Empirical Evaluation Of The 2001 And 2003 Tax Cut Policies On Personal Consumption: Long Run Impact, Fatoumata Diarrassouba

Fatoumata Diarrassouba

This paper examines the effect of the two tax cuts enacted by President Bush in 2001 and 2003 on consumer spending over time. Our analysis, using macroeconomic variables affecting consumer spending, is based on a sample of 210 time series quarterly data of the U.S. population from 1960 to 2012. The previous studies based on the original consumption model defines consumption depends according to disposable income and autonomous consumption but fail to consider the omitted variables resulting from the negative intercept. This research paper uses an instrumental variable, independent from consumption, incorporated in the different models in order to prevent …

Empirical Evaluation Of The 2001 And 2003 Tax Cut Policies On Personal Consumption: Long Run Impact And Forecasting, Fatoumata Diarrassouba

Fatoumata Diarrassouba

This paper examines the effect of the two tax cuts enacted by President Bush in 2001 and 2003 on consumer spending over time. Our analysis, using macroeconomic variables affecting consumer spending, is based on a sample of 210 time series quarterly data of the U.S. population from 1960 to 2012. The previous studies based on the original consumption model defines consumption depends according to disposable income and autonomous consumption but fail to consider the omitted variables resulting from the negative intercept. This research paper uses an instrumental variable, independent from consumption, incorporated in the different models in order to prevent …

Effects Of Multicollinearity On The Estimation Of Macroeconomic Variables: Using Data From Sudan, Professor Issam A.W. Mohamed

Professor Issam A.W. Mohamed

The problem of multicollinearity in the assessments of coefficients is well established. However, it is rarely researched in the estimations of macroeconomic variables and economic performance of developing countries. Predicatively, it has impacts on the estimations of coefficients that should be used in economic decisions, strategic planning and if researchers are more industrious estimations of monetary supplies and demands. All such parameters are very basic and essential in economic plannings and their applications should be done not only in research but in ground applications of the specialized authorities, e.g., Ministries of Finance, Central Banks, Pricing Units, etc. However, that is …

Stock Markets And Household Wealth: Can A Stock Market Crash Cause A Recession In The U.S. Economy?, Ishan Singh

Honors Theses

Stock market wealth effects on the level of consumption in the United States economy have been constantly debated; there is evidence for arguments for and against its prominence and its symmetry. This paper seeks to investigate the strength of its negative effect by creating models to analyze unexpected shocks to the Standard and Poor's 500 index. First, a transmission mechanism between the stock market and GDP is established through the use of second-order vector autoregressive models. Following which, theory from the life cycle model and adaptations of previous researchers' models are used to create a structural model. This paper finds …