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Effects of Unanticipated Income Shocks on Consumption in Mexico, 2000-2016

Irving Llamosas-Rosas () and Rangel González Erick

No 2021-09, Working Papers from Banco de México

Abstract: Changes on consumption of Mexican households generated by unexpected shocks in income, both permanent and transitory, are analyzed during the period 2000-2016 following the methodology developed by Blundell et al. (2008), which allows to evaluate which hypothesis on the response of consumption is more in line with the empirical evidence in Mexico: permanent income, complete markets, or partial insurance. The results suggest the presence of partial insurance on consumption in the face of permanent income shocks at the national level, although results are also consistent with the permanent income hypothesis. However, differences are found between regions when replicating the same analysis. Regarding temporary shocks, the coefficient of the effect of income shocks on consumption is not statistically significant at the national or regional level, which suggests a consumption smoothing by households in the face of temporary changes in their income.

Keywords: Consumption shocks; income; syntethic panel (search for similar items in EconPapers)
JEL-codes: D12 D31 E21 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-ias and nep-mac
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