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Understanding Consumption Smoothing: Evidence from The U.S. Consumer Expenditure Data

Dirk Krueger and Fabrizio Perri
Journal of the European Economic Association
Vol. 3, No. 2/3, Papers and Proceedings of the Nineteenth Annual Congress of the European Economic Association (Apr. - May, 2005), pp. 340-349
Published by: Wiley on behalf of European Economic Association
Stable URL: http://www.jstor.org/stable/40004977
Page Count: 10
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Understanding Consumption Smoothing: Evidence from The U.S. Consumer Expenditure Data
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Abstract

Consumption models with endogenous debt constraints differ from standard incomplete markets models in their predictions about an individual household's ability to smooth consumption across time and states of the world. In this paper we develop these differences, both theoretically and quantitatively. We then use data from the U.S. Consumer Expenditure Survey (CE) to assess along which dimensions the predictions of these models are consistent with the empirical evidence. We find that both types of models fail to fully account for the data and argue that a model that combines aspects of both might be more successful.

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