UK Consumers’ Habits
We follow Fuhrer (2000) in estimating via Maximum Likelihood a log-linear consumption function on UK data. In doing so we consider various habit formation assumptions. We show that a model of purely “external” habits as in Fuhrer (2000) fits the UK data remarkably well, and possibly in a superior way than US data where, according to our estimates, consumers’ habits look more “internal” in that they appear indexed to past average consumption of only a subset of (peer) consumers in the economy, rather than total past per capita consumption. We also find that for about one seventh of UK consumers, current consumption equals current income_a strong violation of the permanent income hypothesis. Embedded in a sticky price-sticky inflation open-economy monetary model, the model that we estimate helps mimic the hump-shaped response of the output gap to income and interest rate shocks observed in the UK. Estimates of output Euler equations for the UK using a similar method agree with our general results. The consumption and output models that we estimate forecast significantly better than unrestricted open-economy VARs.
Year of publication: |
2003
|
---|---|
Authors: | Banerjee, Ryan ; Batini, Nicoletta |
Institutions: | Monetary Policy Committee (MPC), Bank of England |
Saved in:
freely available
Extent: | application/pdf |
---|---|
Series: | Discussion Papers. - ISSN 1748-6203. |
Type of publication: | Book / Working Paper |
Notes: | Number 13 |
Source: |
Persistent link: https://www.econbiz.de/10005017884
Saved in favorites
Similar items by person
-
Monetary Conditions Indices for the UK: A Survey
Batini, Nicoletta, (2000)
-
The Pricing Behaviour of UK Firms
Batini, Nicoletta, (2002)
-
The Lag from Monetary Policy Actions to Inflation: Friedman Revisited
Batini, Nicoletta, (2001)
- More ...