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We argue that the U.S. personal saving rate’s long stability (1960s–1980s), subsequent steady decline (1980s–2007), and recent substantial rise (2008–2011) can be interpreted using a parsimonious ‘buffer stock’ model of consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the long-term saving decline, while fluctuations in wealth and uncertainty capture the bulk of the business-cycle variation.
This paper explains why the collection of panel (reinterview) data on a comprehensive measure of household expenditures is of great value both for measuring budget shares (the core mission of a Consumer Expenditure survey) and for the most important research and public policy uses to which CE data can be applied, including construction of spending-based measures of poverty and inequality and estimating the effects of fiscal policy.
The Great Recession confirmed a bedrock principle of modern consumption theory: It is impossible to explain aggregate spending behavior without knowledge of the underlying microeconomic distribution of circumstances and choices across households. National accounting frameworks therefore need to be augmented by “bottom up” measures that both (a) capture the microeconomic heterogeneity (in expenditures, income, assets, debt, and beliefs) in the population and (b) sum up to statistics that have a recognizable relationship to the aggregate totals that are already reasonably well measured.