Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v63y2014icp80-94.html
   My bibliography  Save this article

New evidence on excess sensitivity of household consumption

Author

Listed:
  • Ni, Shawn
  • Seol, Youn
Abstract
The monthly salaries and allowances of Korean government employees are known in advance but vary greatly throughout the year. Using a Korean monthly panel data set, the present study examines how nondurable consumption expenditures in households headed by government employees respond to predictable income changes. The study finds a moderate excess sensitivity in consumption that can be attributed to about 9% of the households. Further analysis shows that these 9% of the households have lower ‘committed expenditures’ and are likely inattentive consumers.

Suggested Citation

  • Ni, Shawn & Seol, Youn, 2014. "New evidence on excess sensitivity of household consumption," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 80-94.
    • Handle: RePEc:eee:moneco:v:63:y:2014:i:c:p:80-94
    DOI: 10.1016/j.jmoneco.2014.01.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304393214000166
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmoneco.2014.01.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    2. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 1-55.
    3. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, September.
    4. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
    5. James J. Heckman, 2001. "Micro Data, Heterogeneity, and the Evaluation of Public Policy: Nobel Lecture," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 673-748, August.
    6. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    7. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June.
    8. Eichenbaum, Martin & Hansen, Lars Peter, 1990. "Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 53-69, January.
    9. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    10. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    11. Raj Chetty & Adam Szeidl, 2007. "Consumption Commitments and Risk Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 831-877.
    12. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
    13. Stephen H. Shore & Todd Sinai, 2010. "Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 408-424, May.
    14. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    15. Jonathan A. Parker & Bruce Preston, 2005. "Precautionary Saving and Consumption Fluctuations," American Economic Review, American Economic Association, vol. 95(4), pages 1119-1143, September.
    16. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
    17. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, January.
    18. repec:adr:anecst:y:1988:i:9:p:03 is not listed on IDEAS
    19. John Muellbauer, 1988. "Habits, Rationality and Myopia in the Life Cycle Consumption Function," Annals of Economics and Statistics, GENES, issue 9, pages 47-70.
    20. Mork, Knut Anton & Smith, V Kerry, 1989. "Testing the Life-Cycle Hypothesis with a Norwegian Household Panel," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 287-296, July.
    21. Martin Browning & Thomas F. Crossley, 2009. "Shocks, Stocks, and Socks: Smoothing Consumption Over a Temporary Income Loss," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1169-1192, December.
    22. Melvin Stephens Jr., 2003. ""3rd of tha Month": Do Social Security Recipients Smooth Consumption Between Checks?," American Economic Review, American Economic Association, vol. 93(1), pages 406-422, March.
    23. Urban J. Jermann & Marianne Baxter, 1999. "Household Production and the Excess Sensitivity of Consumption to Current Income," American Economic Review, American Economic Association, vol. 89(4), pages 902-920, September.
    24. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    25. Joseph G. Altonji & Aloysius Siow, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 293-328.
    26. John Leahy & Andrew Caplin, 2004. "The Absentminded Consumer," 2004 Meeting Papers 784, Society for Economic Dynamics.
    27. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
    28. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348, National Bureau of Economic Research, Inc.
    29. MacKinnon, James G. & Smith Jr., Anthony A., 1998. "Approximate bias correction in econometrics," Journal of Econometrics, Elsevier, vol. 85(2), pages 205-230, August.
    30. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
    31. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    32. Fumio Hayashi, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1083-1113.
    33. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    34. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
    35. Shapiro, Matthew D & Slemrod, Joel, 1995. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," American Economic Review, American Economic Association, vol. 85(1), pages 274-283, March.
    36. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
    37. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
    38. Benhabib, Jess & Bisin, Alberto, 2005. "Modeling internal commitment mechanisms and self-control: A neuroeconomics approach to consumption-saving decisions," Games and Economic Behavior, Elsevier, vol. 52(2), pages 460-492, August.
    39. Lusardi, Annamaria, 1996. "Permanent Income, Current Income, and Consumption: Evidence from Two Panel Data Sets," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 81-90, January.
    40. Chang-Tai Hsieh, 2003. "Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund," American Economic Review, American Economic Association, vol. 93(1), pages 397-405, March.
    41. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-1113, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kim, H. Youn, 2017. "The permanent income hypothesis, transitional dynamics, and excess sensitivity of consumption," Structural Change and Economic Dynamics, Elsevier, vol. 40(C), pages 10-25.
    2. Concetta Rondinelli & Roberta Zizza, 2020. "Spend today or spend tomorrow? The role of inflation expectations in consumer behaviour," Temi di discussione (Economic working papers) 1276, Bank of Italy, Economic Research and International Relations Area.
    3. Sena Durguner, 2018. "Variations in farm consumption and their relationship to income: an empirical investigation of Illinois farm households," Applied Economics, Taylor & Francis Journals, vol. 50(9), pages 990-1005, February.
    4. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    5. Zizza, Roberta & Adamopoulou, Effrosyni, 2017. "Regular versus lump-sum payments in union contracts and household consumption," Working Paper Series 2013, European Central Bank.
    6. Effrosyni Adamopoulou & Roberta Zizza, 2015. "Accessorizing. The effect of union contract renewals on consumption," Temi di discussione (Economic working papers) 1024, Bank of Italy, Economic Research and International Relations Area.
    7. Vellekoop, Nathanael, 2018. "Explaining intra-monthly consumption patterns: The timing of income or the timing of consumption commitments?," SAFE Working Paper Series 237, Leibniz Institute for Financial Research SAFE.
    8. Tomas Havranek & Anna Sokolova, 2020. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say 'Probably Not'," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 97-122, January.
    9. Hiroaki Hayakawa, 2020. "Consumer behavior in a monetary economy and smoothing of composite consumption," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 89-122, March.
    10. Hiroaki Hayakawa, 2019. "Time Preferences, Intertemporal Optimization, and the Permanent Income-Life Cycle Hypothesis," Growth, Asian Online Journal Publishing Group, vol. 6(1), pages 1-11.
    11. Zhao, Da & Chen, Yifan & Shen, Jim.H., 2020. "Mortgage payments and household consumption in urban China," Economic Modelling, Elsevier, vol. 93(C), pages 100-111.
    12. Sirisankanan, Aeggarchat, 2023. "The Response of Household Savings to Anticipated Income Changes: Natural Experiments Using Natural and Non-Natural Factors," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 48(2), pages 1-31, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shawn Ni, 2007. "Excess Sensitivity in Consumption without Liquidity Constraint: Evidence from Monthly Household Panel Data," Working Papers 0714, Department of Economics, University of Missouri.
    2. Bräuer, Konstantin & Hackethal, Andreas & Hanspal, Tobin, 2020. "Consuming dividends," SAFE Working Paper Series 280, Leibniz Institute for Financial Research SAFE.
    3. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    4. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    5. Daria Pignalosa, 2021. "The Euler Equation Approach: Critical Implications of Recent Developments in the Theory of Intertemporal Choice," Bulletin of Political Economy, Bulletin of Political Economy, vol. 15(1), pages 1-43, June.
    6. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2015. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 21-41.
    7. Arna Olafsson & Michaela Pagel, 2018. "The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4398-4446.
    8. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
    9. Jaoaqin Alegre & Llorenc Pou, 2008. "Further evidence of excess sensitivity of consumption? Nonseparability among goods and heterogeneity across households," Applied Economics, Taylor & Francis Journals, vol. 40(7), pages 931-948.
    10. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    11. Peter Ganong & Pascal Noel, 2019. "Consumer Spending during Unemployment: Positive and Normative Implications," American Economic Review, American Economic Association, vol. 109(7), pages 2383-2424, July.
    12. Rong Hai & Dirk Krueger & Andrew Postlewaite, 2020. "On the welfare cost of consumption fluctuations in the presence of memorable goods," Quantitative Economics, Econometric Society, vol. 11(4), pages 1177-1214, November.
    13. Baugh, Brian & Ben-David, Itzhak & Park, Hoonsuk, 2013. "Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns," Working Paper Series 2013-20, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    14. George-Marios Angeletos & David Laibson & Andrea Repetto & Jeremy Tobacman & Stephen Weinberg, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
    15. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    16. repec:pri:wwseco:dp231 is not listed on IDEAS
    17. Effrosyni Adamopoulou & Roberta Zizza, 2015. "Accessorizing. The effect of union contract renewals on consumption," Temi di discussione (Economic working papers) 1024, Bank of Italy, Economic Research and International Relations Area.
    18. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    19. Choi, Kyoung Jin & Jeon, Junkee & Koo, Hyeng Keun, 2022. "Intertemporal preference with loss aversion: Consumption and risk-attitude," Journal of Economic Theory, Elsevier, vol. 200(C).
    20. Melvin Stephens & Takashi Unayama, 2011. "The Consumption Response to Seasonal Income: Evidence from Japanese Public Pension Benefits," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 86-118, October.
    21. Zizza, Roberta & Adamopoulou, Effrosyni, 2017. "Regular versus lump-sum payments in union contracts and household consumption," Working Paper Series 2013, European Central Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:63:y:2014:i:c:p:80-94. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.