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Determinants of U.S. Consumption Expenditures: 1999-2008

Ying Wu

Abstract


This paper applies the vector error correction method to the U.S. 1999-2008 data to investigate the impacts of seven macroeconomic variables on U.S. consumption expenditures. The empirical findings well support the theoretical result derived from a household optimization problem presented in this study: consumption increases as there are increases in income, the exchange value of the dollar, and the net wealth of households, and decreases in the interest rate and credit tightness. In the short run, asset prices (the dollar’s interest rate and foreign exchange value) and leverage factors (credit tightness and household net worth) as well as inflation expectation explain consumption variation better than income does, though the opposite holds in the long run.

Keywords


consumption, income, interest rate

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