The consumption response to positive and negative income shocks

Philip Bunn, Jeanne Le Roux, Kate Reinold and Paolo Surico

Journal of Monetary Economics, 2018, vol. 96, issue C, 1-15

Abstract: A set of newly-added questions in the 2011–2014 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 such as high debt-to-income ratios and small liquidity buffers, concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry. Our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies.

Keywords: MPC asymmetry; Household balance sheet; Debt; Heterogeneity; Transmission mechanism (search for similar items in EconPapers)
JEL-codes: D12 E21 E52 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (77)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:96:y:2018:i:c:p:1-15

DOI: 10.1016/j.jmoneco.2017.11.007

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