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Current Consumption and Future Income Growth: Synthetic Panel Evidence
by Jeremy J. Nalewaik*

Using group means computed from twenty years of high quality survey data, I show a strong and robust relation between households' consumption growth and subsequent realizations of their income growth, including realizations as distant as six years later.  The relation appears in multiple types of variation in income growth: variation across cohort-education groups, variation over the life cycle, and even some variation over the business cycle.  The results may be evidence of forward-looking households altering their current consumption in response to information they receive about their future income; other interpretations are explored as well.  

*Bureau of Economic Analysis, 1441 L Street NW, Washington, DC 20230 (e-mail: I developed this work with the help of insights from Orazio Attanasio, John Cochrane, Chris Carroll, Steve Davis, Lars Hansen, Erik Hurst, Anil Kashyap, Evan Keonig, Dean Maki, Lior Menzly, Greg Siourounis, Paul Willen, and seminar participants at: the Board of Governors of the Federal Reserve, the University of Chicago Graduate School of Business, the Federal Reserve Bank of Boston, the Federal Reserve Bank of Chicago, the Federal Reserve Bank of Dallas, Indiana University, the University of California Santa Barbara, the University of California San Diego, the Social Security Administration, the Bureau of Economic Analysis, the Second Annual Trans-Atlantic Doctoral Conference at the London Busines School, and the 2002 NBER-CRIW Consumer Expenditure Survey Research Conference. The views expressed in this paper are solely those of the author and not necessarily those of the U.S. Bureau of Economic Analysis or the U.S. Department of Commerce.

Last changed: December 20, 2004