standard permanent income model with intertemporally separable utility: the sensitivity of consumption to lagged consumer … sentiment and to predictable changes in current income I show that in a habit formation model the sensitivity of consumption … growth to predicted income can be to a large extent reinterpreted as a sluggish response of consumption to news Moreover the …

We show that three factors combine to explain the mean excess sensitivity reported in studies estimating consumption … evidence for the excess sensitivity of consumption to income. Hence little remains for pure rule-of-thumb behavior. The results … approximation of the Euler equation, the treatment of non-separability between consumption and leisure, and the choice of proxy for …