There is no doubt that aggregate consumption is a key variable for policy makers.  The aim
of this handbook is to familiarise the reader with the key theories that have been used to model
and forecast consumption and draw out their implications for policy analysis.1   This handbook is
intended to be accessible to those working in policy-related departments without losing economic
rigour.  Important concepts are highlighted in a series of four boxes and technical details in four
appendices. The handbook pays particular attention to the role of forward-looking agents and their
reaction to policy announcements; the role of interest rates in consumption and the role of other
variables thought to affect consumption behaviour such as taxes, the structure of both the banking
system and the stock market, age and wealth distributions and the volatility of economic variables.
Unfortunately, different consumption theories can lead to different policy prescriptions and as such
a clear message arises from this handbook: there is no single consumption theory that can explain
consumption behaviour in all economies; economists must therefore investigate what they think
explains consumption in their country.