Consumption Heterogeneity: Micro Drivers and Macro Implications

Abstract

We document heterogeneity in the marginal propensity to consume (MPC) across household characteristics relevant to understanding heterogeneous agent models and monetary policy transmission. We find a strong negative relationship between household liquid wealth and MPC. We show that household liquid wealth predicts MPC closely for every other household characteristic we look at. We use a new empirical method that overcomes sources of bias found in the existing literature, along with administrative data from Denmark that allow us to identify heterogeneous behavior. We use our results to analyze monetary policy transmission mechanisms in both Denmark and the United States. (JEL D12, D31, E21, E43, E52, G51)

Stimulus Through Insurance: The Marginal Propensity to Repay Debt

“…Fagereng et al (2021) find no significant relationship between MPCs and debt levels when controlling for other household characteristics. Crawley and Kuchler (2023) show that MPCs increase with net wealth for Danish households with negative balances, thus in line with our findings, and then decrease for positive net wealth. 16 External validity.…”

The Heterogeneous Effects of Monetary Policy on Labor Income: Disentangling the Extensive and Intensive Margins

“…Another important dimension is the heterogeneous marginal propensity to consume(Kaplan et al (2018),Auclert (2019),Bilbiie (2020),Crawley and Kuchler (2023) andPatterson (2023)). …”