TY  - JOUR
AU  - Campbell,John Y.
AU  - Mankiw,N. Gregory
TI  - Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2924
PY  - 1990
Y2  - May 1990
UR  - http://www.nber.org/papers/w2924
L1  - http://www.nber.org/papers/w2924.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu

N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu
M1  - published as John Y. Campbell, N. Gregory Mankiw. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," in Olivier Jean Blanchard and Stanley Fischer, editors, "NBER Macroeconomics Annual 1989, Volume 4" MIT Press (1989)

AB  - This paper proposes that the time-series data on consumption, income, and interest rates are best viewed as generated not by a single representative consumer but by two groups of consumers. Half the consumers are forward-looking and consume their permanent income, but are extremely reluctant to substitute consumption temporarily. Half the consumers follow the "rule of thumb" of consuming their current income. The paper documents three empirical regularities that, it argues, are best explained by this medal. First, expected changes in income are associated with expected changes in consumption. Second, expected real interest rates are not associated with expected changes in consumption. Third, periods in which consumption is high relative to income are typically followed by high growth in income. The paper concludes by briefly discussing the implications of these findings for economic policy and economic research.
ER  -