In this paper, we revisit the issue of excess sensitivity of consumption to income and address the weak instrument problem that is well documented in this literature. Using quarterly data for the U.S. economy, we first highlight the weak instrument problem by showing that the use of conventional...

We consider the puzzling behavior of interest rates and inflation in the United States and the United Kingdom between 1879 and 1913. A deflationary regime prior to 1896 was followed by an inflationary one from 1896 until the beginning of World War I; the average inflation rate was 3.8 percentage...