Consumption per effective labour in Brazil: testing for the optimising behaviour

Abstract

We contributed to the literature on household consumption in specific ways: firstly, we adopted a long-run cointegration analysis instead of a first-difference one, which was conventional in previous works; second, by building on monthly data, we enlarged the number of observations of our sample, thus overcoming a common problem of low-frequency data in studies based on quarterly or annual time series. We thus confirmed the hypothesis of an optimising behaviour in consumption for the Brazilian economy, although jointly with a relevant role of income. We also inferred the effect of risk aversion in lowering the optimality of consumption after the Subprime crisis period, based on a Markov-switching approach.