The Consumption Response to Positive and Negative Income Changes

Paolo Surico, Philip Bunn, Kate Reinold and Jeanne LeRoux

No 11829, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A set of newly added questions in the 2011 to 2014 Bank of England/NMG Consulting Survey reveals that British households tend to change their consumption by significantly more in reaction to temporary and unanticipated falls in income than to rises of the same size. Household balance sheet characteristics (including the presence of a savings buffer), concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry and explain significant variation in the marginal propensity to consume across households. Our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies.

Keywords: Mpc asymmetry; Household balance sheet; Heterogeneity; Transmission mechanism (search for similar items in EconPapers)
JEL-codes: D12 E21 E52 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (18)

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Working Paper: The consumption response to positive and negative income changes (2017)
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