On household consumption smoothing : Empirical analysis using household-level micro data and incomplete market models

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This research project documents cross-sectional facts about household income and consumption and develops a dynamic model of consumption expenditure based on the findings. The first project examines expenditure on consumer durables using data from the Consumer Expenditure Survey in the United States of America. The empirical analysis shows that the expenditure on consumer durables is more dispersed across households and more responsive to income shocks than that on nondurable goods. Based on the empirical findings, I develop a dynamic model of household consumption with borrowing constraints and costs of adjusting the stock of consumer durables. With a fixed adjustment cost that applies to large adjustments, the model can replicate the empirical patterns well. The second project documents the evolution of income and consumption inequality in Japan, using data from the Family Income and Expenditure Survey and the National Survey of Family Income and Expenditure. Income inequality has increased since 1980, with a strong rise in the top tail of the distribution in the 1980s and a sharp decline in the bottom tail in the late 1990s. Consumption inequality does not increase as much as income inequality in the late 1990s.