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Excess sensitivity of consumption using micro data in the UK

Yu, Ge (2005): Excess sensitivity of consumption using micro data in the UK.

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The impact of the subjective variables specific to individual financial well being on economic outcomes is considered whether they are able to predict the growth of household consumption. Subjective variables include more information that is difficult to be identified or valued in previous empirical work compared to real income. The empirical analysis finds that the financial well being variables do predict the household consumption of non-durable goods. Higher financial expectations are correlated with less saving. I also find some of the rejection of the PIH is due to asymmetric preferences and the systematic heterogeneity in forecast errors.

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