Quotation Hof, Franz, X, Prettner, Klaus. 2021. Relative consumption, relative wealth, and long-run growth: when and why is the standard analysis prone to incorrect conclusions? Macroeconomic Dynamics.


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Abstract

We employ a novel approach for analyzing the effects of relative consumption and relative wealth preferences on economic growth. In the pertinent literature, these effects are usually assessed by examining the dependence of the growth rate on the two parameters of the utility function that seem to measure the strength of the relative consumption and the relative wealth motives. Applying our fundamental factor approach, we identify specifications in which the traditional approach yields incorrect qualitative conclusions. The problematic specifications have the common unpleasant property that the parameter that seems to determine the strength of the relative consumption motive actually also affects the elasticity of intertemporal substitution of absolute consumption (and the strength of the relative wealth motive). Since the standard approach is unaware of the additional effect(s), it attributes the total change in the growth rate incorrectly to the change in the strength of the relative consumption motive.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Macroeconomic Dynamics
Citation Index SSCI
WU-Journal-Rating new FIN-A, VW-C
Language English
Title Relative consumption, relative wealth, and long-run growth: when and why is the standard analysis prone to incorrect conclusions?
Year 2021
Reviewed? Y
URL https://www.cambridge.org/core/journals/macroeconomic-dynamics/article/abs/relative-consumption-relative-wealth-and-longrun-growth-when-and-why-is-the-standard-analysis-prone-to-incorrect-conclusions/9ED18F01B5B283FE5C996A5F38B696E1
DOI https://doi.org/10.1017/S1365100521000389
Open Access N

Associations

People
Prettner, Klaus (Details)
External
Hof, Franz, X (Vienna University of Technology, Austria)
Organization
Department of Economics (Crespo Cuaresma) (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5343 Economic theory (Details)
5371 Macroeconomics (Details)
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