Do Households Substitute Intertemporally? 10 Structural Shocks That Suggest Not

Edmund Crawley

No 2025-021, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: I combine microdata on the intertemporal marginal propensity to consume with 10 structural macro shocks to identify the role of intertemporal substitution in consumption behavior. Although some of the structural shocks that I examine lead to large and persistent changes in real interest rates—which in many models would induce a large intertemporal substitution effect—I find no evidence that households shift the timing of their consumption in response to these interest rate changes. Indeed, changes to the expected path of income explain almost all the aggregate consumption response, leaving no role for intertemporal substitution.

Keywords: Intertemporal Substitution; HANK; Monetary Policy; Consumption (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Pages: 57 p.
Date: 2025-03-25
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-21

DOI: 10.17016/FEDS.2025.021

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