Did marginal propensities to consume change with the housing boom and bust?

Yunho Cho, James Morley and Aarti Singh

Journal of Applied Econometrics, 2024, vol. 39, issue 1, 174-199

Abstract: We extend a widely used semi‐structural model to identify and estimate dynamic consumption elasticities with respect to transitory income shocks. Applying our model to household survey data, we find a structural break in marginal propensities to consume following the end of the housing market boom, with the average across households increasing significantly. There is important heterogeneity by different household balance sheet characteristics, and the increase in the average appears to be driven by higher short‐run consumption elasticities for homeowners with low liquid wealth. The change in consumption behavior is consistent with tighter borrowing constraints more than a shift in wealth distributions.

Date: 2024
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https://doi.org/10.1002/jae.3016

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Working Paper: Did Marginal Propensities to Consume Change with the Housing Boom and Bust? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:japmet:v:39:y:2024:i:1:p:174-199

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