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Certainty Equivalence and the Excess Sensitivity of Private Consumption

Authors


  • 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.

Abstract

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.

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