To implement the PIH test, the correlations between changes in bilateral real art flows and changes in the components of real GDP are estimated. Substitute the name Harvey Leibenstein for James Duesenberry and these last few sentences about ignoring and not knowing Leibenstein’s name applies as well. In order to realize maximization of utility, the consumer actually consumes according to the level of income that can be gained in the long term. Andrew Haughwout, Benjamin R. Mandel, in Handbook of US Consumer Economics, 2019. Today most of the credit for the ‘golden age’ is given to opportunities for ‘catching up’ with American technology, recession-proof military spending by the US, and high levels of ‘social’ spending. Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals. Second, his own application of neoclassical standards of method to Keynes's aggregate equations—seen in his permanent income hypothesis (1957), the stable demand for money function (1956, 1963), and the theory of the ‘natural rate’ of unemployment (1968)—undermined the case for Keynesian stabilization policy. Against this, the ‘new Keynesians’ explained how sticky prices are rational because of transactions and information costs, and how shocks to demand can destroy both physical and human capital. In the right panel, the regressions are rerun only for countries whose art imports for a product within a given quarter exceeded $1 million. Following the exposition of Clark (1987) in Kim and Nelson (1999), we specify the following unobserved components model: where y is the log of real GDP for a given country, x is a stationary cyclical component, and n is the stochastic trend (i.e. 1 Permanent-Income Hypothesis We start with a simple dynamic consumption-saving model under certainty. Consistent with Kahneman and Tversky’s prospect theory, losses (of consumption) are felt more strongly than gains because we are loss averse. Harry Kelejian, Gianfranco Piras, in Spatial Econometrics, 2017. Demographic factors such as age, gender, number of independents, work status, marital status (Aristei & Gallo, 2016; Du Caju, Rycx, & Tojerow, 2016; Ottaviani & Vandone, 2011; Schicks, 2014; Worthington, 2006), illness or disability (Patel, Balmer, & Pleasence, 2012), and financial literacy (Gathergood, 2012; Lusardi & Tufano, 2015; French & McKillop, 2016; Ironfield-Smith, Keasey, Summers, Duxbury, & Hudson, 2005) are important factors explaining over-indebtedness. They also assert that the economics profession is just at the beginning of systematically applying these models to microdata. Rather, the theory predicts that there will not be an uptick in consumer spending until workers reform expectations about their future incomes. Suppose the ratio of the likelihoods turn out to be 0.7. Let y′=(y1,...,yT) be the data and denote the distribution of y conditional on H0 and on H1 as f0(y|H0,data) and f1(y|H1,data), respectively. Over-indebtedness can also be caused by the cross-borrowing that happens when one lender fails to satisfy the borrower's needs (Haile, Osman, Shuib, & Oon, 2015). Relying on a structural model, one can go beyond analyzing main model predictions to analyzing the importance of different specific model components. For a 1% increase in foreign purchases of US treasury bonds, art imports rise by a modest 0.14%, significant at the 5% level, while art flows are uncorrelated with foreign purchases of US equities. Attanasio and Browning (1995) demonstrate that by allowing demographics to affect preferences and by relaxing the assumption of certainty equivalence, idiosyncratic age effects and precautionary savings can generate hump-shaped consumption profiles without having to appeal to more mechanical explanations like rules of thumb, myopia, or liquidity constraints. The permanent income and life-cycle hypotheses—associated primarily with Nobel prize winners Modigliani and Friedman—highlight the important role of unearned income and future earned income, as well as current income (Dornbusch and Fischer 1990). Though it has been argued that a host of the consumption puzzles around retirement have been put to bed (Hurst, 2008; Hurd and Rohwedder, 2008), the interplay of consumption and income around the time of retirement is not, as it turns out, as stark or straightforward as one might have thought. Their multiple-self individual consists of a farsighted planner and a myopic doer. The dependent variable is the quarterly change in real product-level art exports (similar to Table 10.6), but we now include an additional control for the quarterly change in bilateral foreign purchases of US securities on the right-hand side. These ‘policy ineffectiveness’ propositions were to be hardened still further by the ‘rational expectations’ school of Robert Lucas and Thomas Sargent. The studies by Alesina and Fuchs-Schündeln (2007), analyzing endogenous preferences for redistribution, and Burchardi and Hassan (2013), studying the effect of social ties on growth, are described below and also rely on the natural experiment of German reunification. In order to understand consumption one must understand the social character of consumption. The tendency of Friedman's critique (popularly called ‘monetarism’) was to reinsert an updated version of the Quantity Theory of Money into the heart of macroeconomics. Using evident notation, the joint distribution of w and y can be expressed as. outlined the insights from the permanent income hypothesis of Milton Friedman and the life cycle model of consumption of Franco Modigliani. The permanent income hypothesis is a theory of consumer spending which assumes people spend money according to expected long-term average income. In this example, we find that art demand is sensitive to income at a rate of greater than one-for-one, even after controlling for total imports as a gauge of other consumption goods. Gebhardt (2013) uses German reunification as a natural experiment to analyze the effect of ownership on relationship specific investment in the housing market, and Bursztyn and Cantoni (2016) to investigate the effect of television advertisement on consumption. It was called eradicating economics from any tinge of “psychologizing.” Paul Samuelson’s 1947 landmark Foundations of Economic Analysis made him the “eradicator-in-chief.” Yet, Duesenberry received acknowledgment from both Arrow and Shackle (Mason, 2000) for his contribution to understanding human behavior expressed in his 1949 book, Income, Saving and the Theory of Consumer Behavior. Campbell and Mankiw (1989) propose an extension of the simple model, from a single, fully rational, and forward-looking representative consumer to include a second type of consumer who makes decisions according to “rules of thumb.” This modification helps to explain two empirical violations of the theory: (1) once again, that expected changes in income are associated with expected changes in consumption and (2) real interest rates are not closely related to expected changes in consumption, which means that forward-looking consumers do not adjust their consumption in response to changing interest rates. 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