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Time-Varying Expenditure Shares and Macroeconomic Dynamics

Benjamin Garcia, Mario Giarda, Carlos Lizama and Damian Romero

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We examine the impact of income heterogeneity on macroeconomic dynamics by analyzing households' expenditure decisions across different goods over the business cycle. Using Chilean transaction-level expenditure data, we observe income-dependent systematic variations in expenditure shares over the business cycle, suggesting a relevant role for non-homothetic preferences. We embed these preferences into a Heterogeneous Agent New Keynesian model and analyze their influence on the transmission of fiscal transfers. We find two novel channels associated with non-homotheticities: aggregate consumption sensitivity to income and insurance through expenditure switching. In a calibration for Chile, we find that non-homotheticities lead to substantial amplification of the effects of fiscal transfers of up to fifty percent.

Date: 2023-11
New Economics Papers: this item is included in nep-dge and nep-opm
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