Cons_saving_web_2perpage

Cons_saving_web_2perpage - Econ 1002: Applied Economics...

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Unformatted text preview: Econ 1002: Applied Economics Matthew Wakefield University College London and Institute for Fiscal Studies m.wakefield (at) ucl.ac.uk Jan - Mar 2009 Oce Hour: Tues 3-3.55, Room 209, Drayton www.ucl.ac.uk/economics/degree-courses/undergraduate/course-list/courses/econ1002 coursepage or link from: www.ucl.ac.uk/economics/degree-courses/undergraduate/course-list/courses/applied-economics Thanks to the previous two lecturers, Professors Ian Preston and James Banks, for much of the content of this course. Econ 1002 Matthew Wakefield background Issues / set up Why interested? Outline LCM Framework 2-periods Keys PIH Income Function Bias Expectations Unbiased Example Cons Growth setup CRRA Regression Summary V: Consumption and Saving Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 2 / 36 Econ 1002 Matthew Wakefield background Issues / set up Why interested? Outline LCM Framework 2-periods Keys PIH Income Function Bias Expectations Unbiased Example Cons Growth setup CRRA Regression Summary background Issues / set up Q: How much do agents want to consume today, and how much do they want to save (to consume in the future) or borrow (to bring income forward)? How is this inuenced by: Financial incentives: Total resources available now, and (expected) over the rest of life Financial incentives: Prices, including the interest rate Preferences (for smoothness of consumption over time) Role of household characteristics in shifting needs / preferences Framework to think about these things Empirical implementation based on framework Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 3 / 36 Econ 1002 Matthew Wakefield background Issues / set up Why interested? Outline LCM Framework 2-periods Keys PIH Income Function Bias Expectations Unbiased Example Cons Growth setup CRRA Regression Summary background Why interested? 1 It matters for policy Policy debate in U.K. about adequacy of retirement saving Monetary policy: Framework for thinking effect of interest rate on consumption, saving and borrowing (of individuals) Framework for thinking about effect of temporary VAT cut 2 It matters for the macro-economy Amount of aggregate consumption is a key driver of activity in economy Shocks to interest rates / resource levels often (partly) aggregate: aggregating across households is one way to get at macro effects 3 We are just curious to know how people behave! Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 4 / 36 Econ 1002 Matthew Wakefield background Issues / set up Why interested? Outline LCM Framework 2-periods Keys PIH Income Function Bias Expectations Unbiased Example Cons Growth setup CRRA Regression Summary Outline V: Consumption and Saving 1 Lifecycle Model The LCM framework 2-periods Theory key points 2 A Permanent Income Set Up Permanent/Transitory Income Consumption Function A biased estimate adaptive expectations Uncovering MPC out of permanent income Example 3 Consumption Growth Set Up setup CRRA Regression Specification 4 Summary Matthew Wakefield (UCL/IFS)...
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This note was uploaded on 03/03/2010 for the course ECON 1002 taught by Professor Matthewwakefield during the Spring '09 term at UCL.

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Cons_saving_web_2perpage - Econ 1002: Applied Economics...

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