Understanding Consumption

Abstract

Presents a comprehensive introduction to the study of consumption and saving using theoretical models based on standard microeconomic foundations as well as reviewing the substantial empirical literature on the subject. A number of related topics such as the growth‐to‐saving hypothesis, the impact of interest rates on saving, risk sharing, aggregation, and information are also covered. One main focus of the book is the debate on the permanent income hypothesis and the excess sensitivity of consumption with respect to income. The importance of precautionary saving and liquidity constraints in explaining the observed consumption paths are also discussed in detail.