Near-Rationality, Heterogeneity, and Aggregate Consumption.

This article presents extensions to the debate surrounding actual and permanent-income consumption modeling, addressing distinctions between the nondurable consumption patterns of heterogenous agents and the possible application of the microeconomic near-rationality model of Akerlof-Yellen for aggregate consumption dynamics analysis. Empirical testing of the model is provided, evaluating its short-run behavior accuracy and the size of its utility losses. The model's particular ability to correct for observed smoothness of wealth innovation consumption functions and sensitivity to lagged income changes is also cited.