Business cycle fluctuations and excess sensitivity of private consumption

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 18 October 2007

Working Paper No. 335
By Gert Peersman and Lorenzo Pozzi

We investigate whether business cycle fluctuations affect the degree of excess sensitivity of private consumption growth to disposable income growth. Using multivariate state space methods and quarterly US data for the period 1965-2000 we find that excess sensitivity is significantly higher during recessions.

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