Certainty Equivalence and the Excess Sensitivity of Private Consumption


  • We thank Freddy Heylen, Gerdie Everaert, and an anonymous referee for useful comments and suggestions. We wish to acknowledge support from the Interuniversity Attraction Poles Program - Belgian Science Policy, contract no. P5/21.


For a panel of OECD countries, we show that the magnitude of the estimate for the excess sensitivity of private consumption to current income cannot be explained by a model based on certainty equivalence.