On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version

Rong Hai, Andrew Postlewaite and Dirk Krueger

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We propose a new category of consumption goods, memorable goods, that generate a flow of utility after consumption. We analyze an otherwise standard consumption model that distinguishes memorable goods from other nondurable goods. Consumers optimally choose lumpy consumption of memorable goods. We then empirically document significant differences between levels and volatilities of memorable and other nondurable good expenditures. In two applications we find that the welfare cost of consumption fluctuations driven by income shocks are significantly overstated if memorable goods are not accounted for and that estimates of excess sensitivity of consumption might be entirely due to memorable goods.

Keywords: Memorable Goods; Consumption Volatility; Welfare Cost (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2013-08-23, Revised 2014-04-15
New Economics Papers: this item is included in nep-dge, nep-ltv, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:14-012

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