The Self-Constrained Hand-to-Mouth
Keyword(s):
The Self
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Abstract Many studies have shown that consumption responds to the arrival of predictable income (excess sensitivity). This paper uses a buffer stock model of consumption to understand what causes excess sensitivity and to test which parametrization is consistent with empirical excess sensitivity estimates. Using high frequency granular data from a personal finance app, it finds that while liquidity constraints are a proximate cause, preferences are the ultimate cause of excess sensitivity. Furthermore, it finds that for feasible parameters, a quasi hyperbolic version of the model is more consistent with the level of excess sensitivity relative to a standard exponential model.
2019 ◽
Vol 7
(4)
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pp. 44-53
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1994 ◽
Vol 46
(4)
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pp. 315-330
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