UNEMPLOYMENT AND CONSUMPTION

James R. Malley · Thomas Moutos

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Financial Literacy, Pension, Retirement Analysis Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

In this paper we argue that the aggregate unemployment rate is a valuable measure of aggregate income uncertainty. According to the theory of precautionary saving, an increase in income uncertainty would be expected to increase saving. We use U.S. quarterly data on the consumption of motor vehicles first to examine whether unemployment has a negative effect on consumption and then to differentiate between the various explanations for this phenomenon. We conclude that the negative relationship between unemployment and consumption is due in large part to precautionary saving motives.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1988Statistical analysis of cointegration vectors 1936The General Theory of Employment, Interest and Money.1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1937The General Theory of Employment 1990Statistical Inference in Instrumental Variables Regression with I(1) Processes 1992A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics1 1960A Theory of the Consumption Function

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