Changes In Aggregate Consumption Research Articles

Economic hardship and suicides

PurposeThe purpose of this paper is to investigate the determinants of aggregate suicides in 15 OECD countries during 1960-2010 using an economic model where changes in the welfare of consumers play the critical role for determining the number of suicides.Design/methodology/approachThe hardship index based on economic theory is developed. In estimating the model, the authors apply the Pesaran et al. (2001) approach that allows the simultaneous estimation of the long-run and short-run parameters. To make sure that the authors’ findings are not specific to their method, the authors also use the generalized method of moments estimation in the panel set-up.FindingsThe authors found a relatively strong positive relationship between macroeconomic conditions, especially changes in aggregate consumption, and suicides. The relationship appears to be robust also in terms of the various control variables cited in the literature. The hardship index which is based on the habit persistence model of consumption predicts and explains the long-term behavior of suicides in most of the countries. Thus, the hardship index is a better economic explanatory variable than the unemployment rate or other proxies describing economic conditions.Originality/valueMarrying the economic theory and econometric methods produces a reasonable empirical model to explain the connection between aggregate economic conditions and suicides.

Explaining asset pricing puzzles associated with the 1987 market crash

The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic uncertainty are subject to rare jumps. The arrival of a jump triggers the updating of agents' beliefs about the likelihood of future jumps, which produces a market crash and a permanent shift in option prices. Consumption and dividends remain smooth, and the model is consistent with salient features of individual stock options, equity returns, and interest rates.

Explaining Asset Pricing Puzzles Associated with the 1987 Market Crash

The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic uncertainty are subject to rare jumps. The arrival of a jump triggers the updating of agents' beliefs about the likelihood of future jumps, which produces a market crash and a permanent shift in option prices. Consumption and dividends remain smooth, and the model is consistent with salient features of individual stock options, equity returns, and interest rates.

House prices and aggregate consumption: do they move together? Evidence from Singapore

Using data from Singapore, we find no evidence that house price increases have produced either wealth or collateral enhancement effects on aggregate consumption. We confirm the presence of liquidity constraints from the asymmetric reaction of consumption to income increases vis-a-vis income declines. When we allow for asymmetric response, anticipated house price increases do not have a positive effect on aggregate consumption: we find that they are considerably more likely to have a modest dampening effect, although this negative result is not statistically significant from zero. Declines in expected house price growth have a larger and marginally significant negative effect on consumption. We conclude that the results of recent studies of OECD countries, which find changes in housing wealth to be positively associated with changes in aggregate consumption, cannot be generalized to the Singapore case.

General equilibrium comparative statics: discrete shocks in production economies

Nachbar [Econometrica 79 (5) (2002) 2065] established minimal conditions under which, following an infinitesimal shock to endowments in an exchange economy, changes in equilibrium prices are negatively related to changes in aggregate consumption. The present paper extends Nachbar (2002) to cover discrete shocks to technologies, ownership shares, and endowments in production economies. As in Nachbar (2002), the analyst’s choice of price normalization plays a key role. The required normalization is nonstandard but has a sensible interpretation.

Trends in drinking problems and attitudes in the United States: 1979-1984.

Summary Changes in the prevalence of drinking problems and in attitudes toward the acceptibility of drinking are examined using U.S. general population survey data from 1979 and 1984. Increases in the prevalence of dependence were found for men but not for women. There were no significant differences in the prevalence of drinking-related consequences for either sex. Attitudes have changed, becoming less permissive toward alcohol use. This change is concentrated among younger respondents. Results are interpreted with reference to competing theoretical expectations, one holding that problem and attitude levels rise and fall in direct response to changes in aggregate consumption and the other positing a somewhat more complex dialectic of interactions between levels of consumption, problems, and attitudes.

Rational expectations and the theory of aggregate investment

This paper shows that net aggregate investment satisfies a modified acceleration principle in a neoclassical economy with rational expectations. Net aggregate investment depends mostly on changes in net national income, and in some cases it is also influenced by changes in aggregate consumption.

Savings and Pensions: Some UK Evidence

The sort of problem we shall be interested in is the following: how much does a small change in a mature pay-as-you-go pension scheme change aggregate current consumption? In the context of a community of workers and pensioners with a variable retirement date and a pension scheme where the government taxes workers to pay pensions two sorts of effects have been posited. First, changes in pensions re-distribute current disposable income; this may lead to changes in aggregate consumption (the redistribution effect). Secondly, future pension rights constitute a form of wealth and unanticipated changes in the size or composition of wealth holdings may affect current consumption plans (wealth effects), (see Gultekin and Logue (I979), for a survey and references). Looking at the redistribution effect we observe that if pensioners have a higher short-run marginal propensity to consurme than workers and the same long-run marginal propensity to consume, then an increase in pensions will, ceteris paribus, raise aggregate consumption initially but cause it to fall in the medium run. The long-run elasticity will be zero. Turning to wealth effects, we distinguish two principal elements. Firstly, an unanticipated increase in pensions in a pay-as-you-go scheme increases the lifetime income of pensioners and workers close to retirement. For workers who intend retiring at pensionable age this will lead to an increase in current consumption (so long as it is a normal 'good'). This income effect will be less marked for workers at the beginning of their working life since the net income effect may even be negative for many workers. As time goes by the aggregate net income effect consequent on a rise in pensions is diminished so that we would expect to see an initial rise in consumption followed by a very slow decline in incremental consumption. The long-run elasticity of mean consumption with respect to a rise in pensions would be zero. Note that imperfections in the capital market are unlikely to modify these conclusions since those who wish to increase their consumption are likely to have savings that can be reduced, whilst those for whom borrowing constraints are binding (i.e. younger workers) are unlikely to wish to increase current consumption by much anyway. There are two important caveats to the above. The first is that workers who intend to work after the pensionable age may decrease current consumption if the increase in pensions induces a large enough fall in planned post-pensionable age labour supply (see Crawford and Lilien (I98I) for a theoretical discussion)-'

Decomposition of changes in aggregate consumption of alcohol: Finland, 1968, 1969 and 1976.

Recent survey data from Finland are used to illustrate a method for measuring the roles of three factors--the relative size of the drinking population, the average frequency of drinking and the average quantity consumed per occasion--in changes in aggregate consumption of alcohol.

An intertemporal asset pricing model with stochastic consumption and investment opportunities

This paper derives a single-beta asset pricing model in a multi-good, continuous-time model with uncertain consumption-goods prices and uncertain investment opportunities. When no riskless asset exists, a zero-beta pricing model is derived. Asset betas are measured relative to changes in the aggregate real consumption rate, rather than relative to the market. In a single-good model, an individual's asset portfolio results in an optimal consumption rate that has the maximum possible correlation with changes in aggregate consumption. If the capital markets are unconstrained Pareto-optimal, then changes in all individuals' optimal consumption rates are shown to be perfectly correlated.