NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Role of Consumption in Economic Fluctuations

Robert E. Hall

NBER Working Paper No. 1391 (Also Reprint No. r0784)
Issued in November 1986
NBER Program(s):   EFG

Consumption and income tend to move together; the correlation of their first differences is about 0.14. In most accounts, the correlation is attributed to the upward slope of the consumption function. When the publicis better off, they consume more. But in the microeconomic theory of the household, income is a variable chosen by the household. Choosing to workmore, and therefore to consume less time away from work, is a sign of diminished well being.The structural relation between earnings and consumption should have a negative slope.The explanation of the observed positive correlation of consumption and income must rest on shifts of the consumption-income relation, not movements along it. An examination of data for the U.S. in the twentieth century shows that the slope of the consumption-income relation has been approximately zero. Shifts in consumer behavior explain the positive observed correlation; they are an important, but not dominant, source of overall fluctuations in the aggregate economy.

download in pdf format
   (464 K)

email paper

This paper is available as PDF (464 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1391

Published:

Users who downloaded this paper also downloaded these:
Hall The Role of Consumption in Economic Fluctuations
Hall w0720 Intertemporal Substitution in Consumption
Hall w2265 Consumption
Friedman w1482 Money, Credit and Interest Rates in the Business Cycle
Anderson w14046 Consistent Trade Policy Aggregation
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us