Consumption Sensitivity of Uncertain Households

Gizem Kosar and Davide Melcangi

No 20251014, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Uncertainty is a key component of everyday economic decisions of consumers and, perhaps not surprisingly, it plays a central role in economic models. According to economic theory, forward-looking consumers rely on their expectations and perceived uncertainty when making economic decisions. Nevertheless, measuring the uncertainty that households actually perceive, and how it affects consumer behavior, is challenging. The probabilistic nature of the Survey of Consumer Expectations enables us to make progress on this subject and to construct household-specific time-varying uncertainty. In our recent Staff Report, we empirically show that the marginal propensity to consume (MPC) is increasing and concave in perceived uncertainty. This novel empirical evidence poses a challenge for the conventional consumption-savings model with incomplete markets.

Keywords: household consumption; Survey of Consumer Expectations (SCE) (search for similar items in EconPapers)
JEL-codes: D12 (search for similar items in EconPapers)
Date: 2025-10-14
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:101942

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DOI: 10.59576/lse.20251014

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