Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods

Jeanne Commault

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 2, 96-122

Abstract: Studies based on natural experiments find that consumption responds strongly and significantly to a transitory variation in income, while semistructural estimations find no pass-through of transitory shocks to consumption. I develop a more robust semistructural estimator that relaxes the assumption that log consumption is a random walk. The robust pass-through estimate is significant and large, implying a yearly marginal propensity to consume of 0.32, close to the natural experiment findings. The robust estimator performs well in numerical simulations of a life cycle model, while nonrobust estimators do not. The difference between the two in the simulations is similar to their difference in the survey data.

JEL-codes: D15 E21 J11 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (21)

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Working Paper: Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods (2022)
Working Paper: Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods (2022)
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DOI: 10.1257/mac.20190296

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