The Micro Anatomy of Macro Consumption Adjustments

Rafael Guntin, Pablo Ottonello and Diego Perez

No 27917, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study crises characterized by large adjustments of aggregate consumption through their microlevel patterns. We show that leading theories designed to explain aggregate consumption dynamics differ markedly in their cross-sectional predictions. While theories based on financial frictions predict that rich households with liquid assets should be able to smooth consumption during bad times, neoclassical theories predict that these agents would optimally adjust their consumption if crises severely affect their permanent income. Using microlevel data on several episodes of large aggregate-consumption adjustment, we document that rich households significantly adjust consumption relative to their income, consistent with the permanent-income hypothesis of consumption during crises. We discuss our findings' implications for the effectiveness of stabilization policies that target consumption during crises.

JEL-codes: E21 E60 F41 F44 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-mac and nep-opm
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Published as Rafael Guntin & Pablo Ottonello & Diego J. Perez, 2023. "The Micro Anatomy of Macro Consumption Adjustments," American Economic Review, vol 113(8), pages 2201-2231.

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Journal Article: The Micro Anatomy of Macro Consumption Adjustments (2023)
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