What would you do with £500? (...in your own words)

Thomas Crossley, Peter Levell and Sierra Vásquez, Sofía

No 19628, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A longstanding puzzle in macroeconomics is why individuals with similar levels of available liquidity can have very different marginal propensities to consume (MPCs). We use a new approach to better investigate differences in consumer behaviour in response to hypothetical, one-off gains and losses: using open-ended questions and text analysis to understand the motives underlying consumers decisions. High-liquidity individuals with high MPCs often cite mental accounting motives. Apparently illiquid individuals report a range of coping mechanisms in response to a loss, including labour supply responses, relying on friends and family and selling possessions. This implies greater effective liquidity than narrow financial measures indicate.

JEL-codes: C82 C83 D14 E21 (search for similar items in EconPapers)
Date: 2024-10
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