A Theory of Aggregate Consumption

Yk Kim, Mark Setterfield and Yuan Mei

No 1301, Working Papers from Trinity College, Department of Economics

Abstract: We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt-finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and that the treatment of debt servicing commitments as a substitute for savings by these households creates the potential for “sudden stops” in consumption spending (and hence aggregate demand). The implications for aggregate consumption of changes in the distribution of income and changes in the composition of employment are also explored.

Keywords: Consumption; household borrowing; household debt; relative income hypothesis (search for similar items in EconPapers)
JEL-codes: E12 E21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-01
New Economics Papers: this item is included in nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://www3.trincoll.edu/repec/WorkingPapers2013/WP13-01.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: A theory of aggregate consumption (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1301

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