Publication Type
Journal Article
Version
publishedVersion
Publication Date
1-2015
Abstract
The outbreak of the financial crisis in 2008 witnessed a significant contraction in US consumption spending, as households began deleveraging following a period marked by historically high levels of household borrowing. These events call into question the canonical life-cycle theory of consumption, with its benign view of debt as a neutral instrument of optimal intertemporal expenditure smoothing. This paper draws attention to an alternative, post-Keynesian account of consumption spending in which current income, household borrowing and household indebtedness all affect current consumption. Central to the analysis is an empirical investigation of US consumption spending since the 1950s. The results of this inquiry cast doubt on the life-cycle hypothesis, but are congruent with the alternative, post-Keynesian account of consumption.
Keywords
Consumption, Household borrowing, Household debt, Life-cycle hypothesis, Relative income hypothesis
Discipline
Behavioral Economics | Macroeconomics
Research Areas
Macroeconomics
Publication
Cambridge Journal of Economics
Volume
39
Issue
1
First Page
93
Last Page
112
ISSN
0309-166X
Identifier
10.1093/cje/beu029
Publisher
Oxford University Press
Citation
KIM, Yun K.; SETTERFIELD, Mark; and MEI, Yuan.
Aggregate consumption and debt accumulation: An empirical examination of US household behavior. (2015). Cambridge Journal of Economics. 39, (1), 93-112.
Available at: https://ink.library.smu.edu.sg/soe_research/2184
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1093/cje/beu029