Heterogeneity in MPC Beyond Liquidity Constraints: The Role of Permanent Earnings

Jeanne Commault

SciencePo Working papers Main from HAL

Abstract: The distribution of MPCs is central in many economic questions but presents puzzling stylized facts. I show that standard consumption models generate a positive relation between people's permanent component of earnings and their MPC, because the MPC depends on liquid wealth but also on the variance of future earnings. This variance is higher at higher levels of permanent earnings. This relation can explain recent stylized facts. Survey data support a positive effect of permanent earnings on the MPC, of a magnitude comparable to that of wealth. Numerical simulations with realistic earnings risk replicate the survey results and stylized facts.

Keywords: Marginal Propensity to Consume; Earnings Risk; Precautionary Saving; Standard Incomplete Market Model (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-dge
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03870685v2
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://sciencespo.hal.science/hal-03870685v2/document (application/pdf)

Related works:
Working Paper: Heterogeneity in MPC Beyond Liquidity Constraints: The Role of Permanent Earnings (2024)
Working Paper: Heterogeneity in MPC Beyond Liquidity Constraints: The Role of Permanent Earnings (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03870685

Access Statistics for this paper

More papers in SciencePo Working papers Main from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().