I incorporate expectations-based reference-dependent preferences into a dynamic stochastic model to explain three major life-cycle consumption facts; the intuitions behind these three implications constitute novel connections between recent advances in behavioral economics and prominent ideas in...

Within the context of the Permanent Income Hypothesis (PIH), the predictions for consumption depend crucially upon the process for income. In this paper, we consider an unobserved components model that allows for both asymmetric transitory movements and correlation between permanent and...

State-level consumption exhibits excess sensitivity to lagged income to the same extent as US aggregate data, but state-specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged stste-specific income - a result that also holds for Canadian provinces. We propose the...

This paper observes the Turkish household’ consumption data to see whether it follows random walk or not. The quarterly data covers the period from 1987:1 to 2003:4. By employing the direct tests for random walk, excess smoothness or excess sensitivity, this study results in both excess...

This paper studies the consumption decisions of agents who face costs of acquiring, absorbing and processing information. These consumers rationally choose to only sporadically update their information and re-compute their optimal consumption plans. In between updating dates, they remain...

This paper explores whether habit formation in the representative agent’s preferences can explain two failures of the standard permanent income model with intertemporally separable utility: the sensitivity of consumption to lagged consumer sentiment and to predictable changes in current income...