Smooth it Like the “Joneses?” Estimating Peer-Group Effects in Intertemporal Consumption Choice
Inhalt
Recent theoretical contributions have suggested peer-group effects as a potential
explanation for several puzzles in macroeconomics, but their empirical relevance for
intertemporal consumption choice is an open question. We derive an extension of the
standard life-cycle model that allows for consumption externalities. In this framework, we
propose a social multiplier approach to distinguish true externalities from merely correlated
effects. Estimating our model using US panel data, we find strong predictable co-movement
of household consumption within peer groups. Although much of this co-movement reflects
correlated effects only, there is statistically significant evidence for moderate consumption
externalities across several plausible peer-group specifications.
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