A Neglected Controversy in the Modelling of Consumers' Expenditure

Papers by Thomas (1989, 1992) have noted how the often recounted `stylised history' of the consumption function differs from the true sequence of events in its early history. Thomas notes many interesting applied studies and debates which the stylised history overlooks. To these can be added the debate over the cyclical nature of consumption considered here. This debate is documented here, and the data used in the original studies is reexamined. The analysis shows that the use of current econometric tests and practices does not allow any advance to be made on the work of the original authors, as a simplistic model considered at the time proves to be the best model available, encompassing an alternative `modern' specification.