The Review of Economics and Statistics Vol. 47 No. 1 1965
Estimates of Distributed Lag Consumption Functions from Cross Section Data
Abstract
THE use of distributed lag techniques in econometric research has greatly advanced the methods of analyzing short-run and long-run patterns of behavior. In this article, we shall be particularly interested in estimating quantitatively the differences between shortrun and long-run marginal propensities to consume (MPC) by means of a distributed lag consumption function, where current consumption is a function of a series of past incomes with geometrically decreasing weights. Estimates of this general kind have already been carried out in earlier work by Friedman, Klein, and Nerlove.' However, while these studies are based on time series data, the estimates in the present article are based on cross section data. The latter data have, as far as I know, never been used for this purpose. Clearly one cannot estimate a distributed lag consumption function from a single period cross section of families. One may however make use of reinterview surveys to provide the necessary time dimension. Since, in our study (as is usually the case), the reinterview surveys extend over two periods only, the distributed lag function to be used must be limited to the very simple type mentioned above. While the economic formulation of the consumption function to be used is based entirely on the three foregoing works, the statistical analysis is different and involves the application of new techniques in dealing with the least squares bias inherent in our particular problem. The outline of this article is as follows. In section II we review the formulations of the economic relationship. The statistical problems of the least squares bias and of consistent estimation are taken up in section III. In section IV, we discuss some points concerning the statistical data which are based on three reinterview surveys. The empirical results are presented and discussed in section V. Finally, section VI deals with some qualifications of our conclusions.
- DOI
- 10.2307/1924121
- Volume
- 47
- Issue
- 1
- Pages
- 44
- Sources
- openalex crossref