Heterogeneity and Aggregate Consumption: An Empirical Assessment

Jordi Galí and Davide Debortoli

No 1484, Working Papers from Barcelona School of Economics

Abstract: We provide an empirical assessment of a central implication of models with idiosyncratic income risk and incomplete markets: the existence of a role for the distribution of wealth in shaping the dynamics of aggregate consumption. Estimates of consumption Euler equation models extended to include wealth distribution statistics show the latter to have a negligible quantitative impact on aggregate consumption. This contrasts with the important role played by current disposable income, even when we use data for households with (relatively) high liquid wealth. The latter finding suggests the presence of a significant behavioral component behind the high sensitivity of consumption to current income.

Keywords: HANK models; idiosyncratic income risk; incomplete markets; representative household; TANK models (search for similar items in EconPapers)
JEL-codes: E21 E32 (search for similar items in EconPapers)
Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1484

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