<p>Intertemporal consumption smoothing is using savings or borrowing to make consumption less volatile than income (or sometimes wealth). The intertemporal consumption smoothing  motive can arise in many settings, but an early and famous example is the Milton Friedman’s permanent income hypothesis. The idea is that if income contains permanent and temporary shocks then maximizing the NPV of lifetime utility will make you ignore temporary shocks and consume a fixed fraction of your permanent income. </p>

<p>Essentially, you know temporary shocks are temporary. If you cut back on consumption in the face of these temporary shocks you'd end up with consumption that is higher than average in better times. Because of declining marginal utility of consumption this is a worse consumption plan than keeping your consumption fixed in good times and bad. </p>

<p>In contrast, if you experience a permanent negative shock to consumption there won't (in expectation) be a good time to make up for the lost income. Leaving your consumption unchanged in the present would therefore require even larger cutbacks in the future. This is a worse consumption plan than cutting your consumption immediately and using that new and lower plan going forward.</p>

CC BY-SA 3.0
2016-01-20T22:23:45.973Z
This does not really explain what inter-temporal smoothing is in the context of the OECD report.
Lassie Fair
CC BY-SA 3.0
2016-01-21T00:07:06.690Z
I think this is a really good answer
ChinG
CC BY-SA 3.0
2016-01-20T22:13:41.373Z
2016-01-21T11:03:00.657Z
2016-01-21T11:03:00.657Z
BKay
<p>Inter-temporal smoothing refers to the smoothing of consumption over your lifetime. Usually a persons income increases over their lifespan as they gain more experience, learn new skills, get promoted up the corporate ladder, etc. But most people also anticipate this and as they are somewhat impatient (and need stuff) they take loans when they are younger as they can pay these back later when their income is larger (or so they think). So instead of level of consumption directly following the level of income, consumption is somewhat more even. When income is lower the consumer takes a loan to increase consumption and when income is higher the consumer repays the loan and thereby decreases consumption.</p>

<p>By taking a loan you brought consumption spending forward from the future.</p>

CC BY-SA 3.0
2016-01-20T22:10:45.233Z
2016-01-20T22:10:45.233Z
Giskard
<p>In a <a href="http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html" rel="nofollow">recent article about the OECD latest report</a> it reads as follows:</p>

<blockquote>
  <p>Mr White said QE and easy money policies by the US Federal Reserve and
  its peers have had the effect of bringing spending forward from the
  future in what is known as "inter-temporal smoothing". It becomes a
  toxic addiction over time and ultimately loses traction. In the end,
  the future catches up with you. "By definition, this means you cannot
  spend the money tomorrow," he said.</p>
</blockquote>

<p>What does he mean by "inter-temporal smoothing" and "bringing spending forward". How do you "bring spending forward"?</p>

CC BY-SA 3.0
2017-02-06T09:32:10.180Z
Wow, I did answer one of your questions! It has multiple answers and a lot of upvotes as well. But alas even so you do not accept BKay's answer - nothing seems to please you.
Giskard
<monetary-policy><money-supply>
What is "inter-temporal smoothing"?
Lassie Fair
# What is "inter-temporal smoothing"?

(Asked by: username_0 on 2016-01-20)

In a [recent article about the OECD latest report](http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html) it reads as follows:

> Mr White said QE and easy money policies by the US Federal Reserve and
> its peers have had the effect of bringing spending forward from the
> future in what is known as "inter-temporal smoothing". It becomes a
> toxic addiction over time and ultimately loses traction. In the end,
> the future catches up with you. "By definition, this means you cannot
> spend the money tomorrow," he said.

What does he mean by "inter-temporal smoothing" and "bringing spending forward". How do you "bring spending forward"?

**Tags:** monetary-policy, money-supply
> **Comments:**
> **username_1**: Wow, I did answer one of your questions! It has multiple answers and a lot of upvotes as well. But alas even so you do not accept BKay's answer - nothing seems to please you.  

---

## 2 answers

### Answer by username_2 on 2016-01-20. Score: 4

Intertemporal consumption smoothing is using savings or borrowing to make consumption less volatile than income (or sometimes wealth). The intertemporal consumption smoothing motive can arise in many settings, but an early and famous example is the Milton Friedman’s permanent income hypothesis. The idea is that if income contains permanent and temporary shocks then maximizing the NPV of lifetime utility will make you ignore temporary shocks and consume a fixed fraction of your permanent income.

Essentially, you know temporary shocks are temporary. If you cut back on consumption in the face of these temporary shocks you'd end up with consumption that is higher than average in better times. Because of declining marginal utility of consumption this is a worse consumption plan than keeping your consumption fixed in good times and bad.

In contrast, if you experience a permanent negative shock to consumption there won't (in expectation) be a good time to make up for the lost income. Leaving your consumption unchanged in the present would therefore require even larger cutbacks in the future. This is a worse consumption plan than cutting your consumption immediately and using that new and lower plan going forward.

> **Comments:**
> **username_0**: This does not really explain what inter-temporal smoothing is in the context of the OECD report.  
> **username_3**: I think this is a really good answer  

---

### Answer by username_1 on 2016-01-20. Score: 2

Inter-temporal smoothing refers to the smoothing of consumption over your lifetime. Usually a persons income increases over their lifespan as they gain more experience, learn new skills, get promoted up the corporate ladder, etc. But most people also anticipate this and as they are somewhat impatient (and need stuff) they take loans when they are younger as they can pay these back later when their income is larger (or so they think). So instead of level of consumption directly following the level of income, consumption is somewhat more even. When income is lower the consumer takes a loan to increase consumption and when income is higher the consumer repays the loan and thereby decreases consumption.

By taking a loan you brought consumption spending forward from the future.


---

