What drives heterogeneity in the marginal propensity to consume? Temporary shocks vs persistent characteristics

Michael Gelman

Journal of Monetary Economics, 2021, vol. 117, issue C, 521-542

Abstract: Many empirical studies show that cash on hand is the most important source of variation in explaining heterogeneity in the marginal propensity to consume (MPC). To explain this, one class of models focuses on the role of heterogeneity in persistent characteristics across individuals while the other class focuses on the role of circumstances within individuals. This paper provides the first empirical measure of the relative importance of circumstances and characteristics in explaining the variance of the MPC. It then maps this empirical measure into a buffer stock model with discount factor heterogeneity to assess how well it explains the data.

Keywords: Marginal propensity to consume; Consumption; MPC heterogeneity (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:521-542

DOI: 10.1016/j.jmoneco.2020.03.006

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