Temptation and Commitment: A Model of Hand-to-Mouth Behavior

Abstract

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The financial network channel of monetary policy transmission: an agent-based model

“…HtM consumers allocate almost all, if not all, their current income to consumption due to unsophisticated behavior (of the non-optimizing or rule-of-thumb variety) or inability to trade in asset markets because of high transaction costs(Weil (1992)). There is robust empirical evidence that HtM consumers correspond to a large fraction of households in developed countries and have a high marginal propensity to consume even out of temporary income shocks(Attanasio et al (2020);Kaplan et al (2014)). Another feature of our model that further validates the assumption that households behave as HtM consumers, and which is in keeping with the evidence offered inKaplan and Violante (2010), is that households do not have access to consumer credit.…”