An Empirical Analysis of Saving Behavior and Automobile Expenditure Based on the Consumer Expenditure Survey

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This project uses the Consumer Expenditure Survey to analyze two important problems: the determinants of saving behavior in the 1980's and the influence of durability and transaction costs on consumer choices. The Consumer Expenditure (CEX) Survey is a large survey carried out by the Bureau of Labor Statistics to collect the information used to compute the weights of the consumer price indexes. Since 1980 the Survey has been conducted on a regular basis and has the nature of a rotating panel. The data set is unique in the sense that it is the only US micro data set which has detailed and complete information on consumer expenditure. This information is complemented by data on a large number of household characteristics. The data set, therefore, provides the investigator with a wealth of economic information which has heretofore been only partially analyzed. The availability of detailed data on consumption expenditure, income and household characteristics permits a detailed analysis of saving behavior. The first aim of the project is to determine the most likely causes of the decline in aggregate savings in the 1980s. Particular attention will be paid to cohort and life cycle effects as well as to changes in the level and distribution of income. The quantitative significance of other factors, like education, housing tenure decisions, family composition, etc. will also be considered. The second aim of the project, the analysis of vehicle expenditure by US households, will be framed within a structural model of intertemporal choice. Two elements will be at the center of the analysis: the implications for intertemporal choices of preferences which are non-separable between durable services and non-durable expenditure, and of the presence of transaction costs in changing the stock of durables. The consideration of these issues constitutes a substantial improvement over most of the existing literature on durable expenditures and, more generally, on intertemporal allocation of consumption.