New evidence on excess sensitivity of household consumption

The monthly salaries and allowances of Korean government employees are known in advance but vary greatly throughout the year. Using a Korean monthly panel data set, the present study examines how nondurable consumption expenditures in households headed by government employees respond to predictable income changes. The study finds a moderate excess sensitivity in consumption that can be attributed to about 9% of the households. Further analysis shows that these 9% of the households have lower 'committed expenditures' and are likely inattentive consumers.