We investigate the effects of assuming a fully permanent income shock in a standard buffer-stock consumption model, when the true income process is only highly persistent. This assumption is computationally very advantageous, and thus often used, but might be problematic due to the implied...

To analyze the effectiveness of stabilization policies which includes effects on households future income it is central to account for anticipation effects on consumption. We investigate this using high-frequency spending and balance sheet data from a major Danish bank. We examine the behavior...