Surprises in the consumption function: a comparative study

Abstract

The ‘surprise’ consumption function is estimated for selected industrial countries (France, Germany, Japan, and the USA) and four high-growth East Asian countries (Hong Kong, South Korea, Singapore, and Taiwan). The main objective of the paper is to test Hall's (1978) hypothesis that the rate of change in comsumption is determined by the innovation in the income-generating process. The main findings are that compared to the selected industrial countries, (a) consumption is more volatile in East Asian countries and (b) the ‘surprise’ coefficient is higher for the East Asian countries.