U. S. Households Consumption, A Comprehensive Analysis

Abstract

Consumption is perhaps the most important economic behavior of human beings. To it goes the lion's share of the country's annual product. This study is part of the ongoing efforts to give a reasonable description of how various factors affect household consumption decision. Those factors include the household's income, demographic characteristics, age structure, cohort characteristics, and commodity prices. The study starts with a cross section analysis based on a sample of about 5,000 households in 2000 U.S. Consumer Expenditure Survey (CES) to look at how income, demographic variables, and age structure affect the household's consumption decision. In the second step, 15 years of CES data (from 1986 to 2000) is used to construct 62 cohorts of households by the birth year of the head of the household, and then examine the impact of age, cohort, and year on the household's spending pattern. In the third and final step, the price effects are examined within the framework of a system of time series equations, incorporating results from the previous two steps. This study enriches the current literature of consumption economics in two aspects. Firstly it builds a linkage so that the information of consumption behavior at household level is summarized into one variable which becomes one of the key determinants to personal consumption expenditure at macro level. Secondly it constructs a set of cohort data and lay out a framework where the changes of consumption patterns caused by generation effects can be examined. The dissertation is organized into five chapters. Following introduction in Chapter 1, Chapter 2 describes the cross section analysis of U.S. Household consumption pattern. Chapter 3 examines the issue from a cohort perspective. Chapter 4 builds the system of demand equations in time series and estimates the model. Chapter 5 concludes the study and explores possible directions for future work.