Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence / John Y. Campbell, N. Gregory Mankiw.

Format:

Book

Author/Creator:

Campbell, John Y.

Contributor:

National Bureau of Economic Research.

Mankiw, N. Gregory.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2924.

NBER working paper series no. w2924

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Consumption, Income, and Interest Rates

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

This paper proposes that the time-series data on consumption, income, and interest rates are best viewed as generated not by a single representative consumer but by two groups of consumers. Half the consumers are forward-looking and consume their permanent income, but are extremely reluctant to substitute consumption temporarily. Half the consumers follow the "rule of thumb" of consuming their current income. The paper documents three empirical regularities that, it argues, are best explained by this medal. First, expected changes in income are associated with expected changes in consumption. Second, expected real interest rates are not associated with expected changes in consumption. Third, periods in which consumption is high relative to income are typically followed by high growth in income. The paper concludes by briefly discussing the implications of these findings for economic policy and economic research.

Notes:

Print version record

April 1989.