The Role of Consumption in Economic Fluctuations / Robert E. Hall.

Format:

Book

Author/Creator:

Hall, Robert E.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1391.

NBER working paper series no. w1391

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

Consumption and income tend to move together; the correlation of their first differences is about 0.14. In most accounts, the correlation is attributed to the upward slope of the consumption function. When the publicis better off, they consume more. But in the microeconomic theory of the household, income is a variable chosen by the household. Choosing to workmore, and therefore to consume less time away from work, is a sign of diminished well being.The structural relation between earnings and consumption should have a negative slope.The explanation of the observed positive correlation of consumption and income must rest on shifts of the consumption-income relation, not movements along it. An examination of data for the U.S. in the twentieth century shows that the slope of the consumption-income relation has been approximately zero. Shifts in consumer behavior explain the positive observed correlation; they are an important, but not dominant, source of overall fluctuations in the aggregate economy.

Notes:

Print version record

June 1984.