scholarly journals Asymmetric Consumption Effects of Transitory Income Shocks*

2019 ◽  
Vol 129 (622) ◽  
pp. 2322-2341 ◽  
Author(s):  
Dimitris Christelis ◽  
Dimitris Georgarakos ◽  
Tullio Jappelli ◽  
Luigi Pistaferri ◽  
Maarten van Rooij
Keyword(s):  
Representative Sample ◽  
Intertemporal Choice ◽  
Borrowing Constraints ◽  
Precautionary Saving ◽  
Income Shocks ◽  
Survey Questions ◽  
Finite Horizons ◽  
Transitory Income

Abstract We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, transitory income shocks (positive or negative). The questionnaire also distinguishes between relatively small income changes (a one-month increase or drop in income), and relatively larger ones (equal to three-months' income). The results are broadly in line with models of intertemporal choice with precautionary saving, borrowing constraints and finite horizons.

The Economics of Consumption

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Intertemporal Choice ◽  
Theoretical Models ◽  
Precautionary Saving ◽  
Empirical Literature ◽  
Consumption Decisions ◽  
Empirical Estimates ◽  
Economic Downturns ◽  
Stabilization Policies ◽  
The Rich

Consumption decisions are crucial determinants of business cycles and growth. Knowledge of how consumers respond to the economic environment and how they react to the risks that they encounter during the life cycle is therefore crucial for evaluating stabilization policies and the effectiveness of fiscal packages implemented in response to economic downturns or financial crises. Do anticipated income changes have a different impact on consumption than unanticipated shocks? Do all consumers respond in the same way, or does the response vary by the economic circumstances and consumers’ characteristics? Do the rich increase consumption less than the poor when their income changes? In the past decades, economist have proposed many analytical perspectives, and studied these questions with a variety of data and approaches. This book attempts to guide readers through the most important theoretical papers in the field, and to evaluate theoretical models using facts or available empirical estimates. It is divided into three parts. The first seven chapters provide the basic ingredients of models with intertemporal choice, guiding the reader from a model without uncertainty to intertemporal models with precautionary saving and borrowing constraints. The central part of the book reviews recent empirical literature on the effect of income changes on consumption and on the relevance of precautionary saving. The last four chapters contain a selection of various extensions of the intertemporal model studied in the first part of the book.

The Buffer Stock Model

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Marginal Utility ◽  
Credit Constraints ◽  
Liquidity Constraints ◽  
Borrowing Constraints ◽  
Precautionary Saving ◽  
Buffer Stock ◽  
Borrowing Constraint ◽  
Stock Model ◽  
Intertemporal Decisions ◽  
Period Model

We analyze models that combine precautionary saving and liquidity constraints to provide a unified, more realistic treatment of intertemporal decisions. We start off with a simple three-period model to illustrate how the expectation of future borrowing constraints can induce precautionary saving even in scenarios in which marginal utility is linear. A more general model that allows liquidity constraints and precautionary saving to interact fully is the buffer stock model, of which there are two versions. One, developed by Deaton (1991), emphasizes the possibility that a prudent and impatient consumer may face credit constraints. The other, by Carroll (1997), features the same type of consumer but allows for the possibility of income falling to zero and so generating a natural borrowing constraint.

scholarly journals Permanent versus transitory income shocks over the business cycle

2021 ◽  
Vol 139 ◽  
pp. 103873
Author(s):  
Agnes Kovacs ◽  
Concetta Rondinelli ◽  
Serena Trucchi
Keyword(s):  
Business Cycle ◽  
Income Shocks ◽  
Transitory Income ◽  
The Business Cycle

scholarly journals The Distribution of Wealth and the MPC: Implications of New European Data

2014 ◽  
Vol 104 (5) ◽  
pp. 107-111 ◽  
Author(s):  
Christopher D. Carroll ◽  
Jiri Slacalek ◽  
Kiichi Tokuoka
Keyword(s):  
Wealth Distribution ◽  
Wealth Inequality ◽  
Income Shocks ◽  
Income Dynamics ◽  
Aggregate Consumption ◽  
Distribution Of Wealth ◽  
Marginal Propensity To Consume ◽  
Transitory Shocks ◽  
Transitory Income ◽  
Marginal Propensity

Using a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks, we study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). Across the 15 countries in our sample, we find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks, and (iii) when we consider households only use liquid assets (rather than net wealth) to smooth consumption.

scholarly journals Asymmetric Consumption Effects of Transitory Income Shocks

2017 ◽  
Author(s):  
Dimitris Christelis ◽  
Dimitris Georgarakos ◽  
Tullio Jappelli ◽  
Luigi Pistaferri ◽  
Maarten <!>van Rooij
Keyword(s):  
Income Shocks ◽  
Transitory Income

scholarly journals HOUSING CHOICES AND THEIR IMPLICATIONS FOR CONSUMPTION HETEROGENEITY

2021 ◽  
pp. 1-20
Author(s):  
Eva de Francisco
Keyword(s):  
Transaction Costs ◽  
Great Recession ◽  
Borrowing Constraints ◽  
Empirical Literature ◽  
Income Shocks ◽  
Stylized Facts ◽  
Net Worth ◽  
Aggregate Consumption ◽  
The Great Recession ◽  
Significant Size

This paper proposes a model to jointly explain two stylized facts observed in the recent empirical literature—the existence of a significant size of wealthy hand-to-mouth consumers and negative marginal propensities to consume associated with housing upgrades. The key ingredients of the model are a realistic set of housing choices, sizable down payment requirements, transaction costs, and endogenous borrowing constraints. Moreover, in the presence of unanticipated income shocks, this richness in marginal propensities to consume has significant implications for aggregate consumption and helps explain the puzzling increase in savings by low net worth households observed during the Great Recession as well as the consumption responses to recent tax rebates.

scholarly journals Happiness and the Persistence of Income Shocks

2015 ◽  
Vol 7 (4) ◽  
pp. 160-187 ◽  
Author(s):  
Christian Bayer ◽  
Falko Juessen
Keyword(s):  
Incomplete Markets ◽  
Instrumental Variable ◽  
Estimation Procedure ◽  
Well Being ◽  
Income Shocks ◽  
Transitory Shocks ◽  
Transitory Income ◽  
Observable Data ◽  
Per Se ◽  
Two Step Estimation

We reassess the empirical effects of income and employment on self-reported well-being. Our analysis makes use of a two-step estimation procedure that allows us to apply instrumental variable regressions with ordinal observable data. As suggested by the theory of incomplete markets, we differentiate between the effects of persistent and transitory income shocks. In line with this theory, we find that persistent shocks have a significant impact on happiness while transitory shocks do not. This also has consequences for inference about the happiness effect of employment. We find that employment per se is associated with a nonsignificant decline in happiness. (JEL D12, D52, I31, J22)

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