What explains consumption in the very short-run? Evidence from checking account data

Marc Anthony Fusaro, Donald H. Dutkowsky

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

This paper investigates consumption behavior within an intertemporal optimization model of the representative household. Our dataset consists of deposits and withdrawals from individual household checking accounts that received paychecks by direct deposit. We construct samples of panel data for households with weekly, biweekly, and semi-monthly pay-periods and form two different measures of consumption for each sample. GMM estimates of structural parameters provide mixed evidence for habit formation or durability and limited support for the permanent income hypothesis. The results instead point to "rule of thumb" consumption under liquidity constraints, where the household consumes its current disposable income each pay-period with possible debt servicing. These findings are uniform with regard to estimation of sub-samples split according to age or household income.

Original languageEnglish (US)
Pages (from-to)542-552
Number of pages11
JournalJournal of Macroeconomics
Volume33
Issue number4
DOIs
StatePublished - Dec 1 2011

Keywords

  • " Rule of thumb" consumption
  • Checking account data
  • Durability
  • Habit formation
  • Household consumption
  • Liquidity constraints

ASJC Scopus subject areas

  • Economics and Econometrics

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