Consumption related to the state of the economy
Consumption is proportional to a target wealth with the marginal propensity to consume depending on the state of the macroeconomy, new research from the St Louis Federal Reserve reveals.
The research shows how consumption is affected by uncertainty and borrowing constraints. The analysis looks at two puzzles related to aggregate consumption growth: the excessive sensibility to lagged or predictable income changes, and excessive smoothness relative to current income growth.
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