The Distribution of Wealth and the Marginal Propensity to Consume

Carroll, Christopher D.; Slacalek, Jiri; Tokuoka, Kiichi

doi:10.2139/ssrn.2404862

Cited by 43 publications

(30 citation statements)

References 40 publications

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“…In addition, our results resemble what is found in the literature dealing with the nexus between household characteristics and the marginal propensity to consume (MPC). Aggregate MPC is typically found to depend on how aggregate shocks are distributed across households (see, for instance, Calvet and Comon, 2003; Carroll, 2009; Carroll et al ., 2017; Gelman, 2021). In this context, higher marginal propensities to consume, as typically found in the literature, can explain why our pandemic shock has a larger impact on lower‐income households.…”

Section: Resultsmentioning

confidence: 99%

Pandemic Shocks and Household Spending*

Finck

Tillmann

2021

Oxf Bull Econ Stat

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We study the response of daily household spending to the surprise number of fatalities of the COVID‐19 pandemic, which we label as a pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state‐dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low‐income households exhibit a significantly larger drop in consumption than high‐income households. Thus, consumption inequality increases after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state‐variables to separate regimes.

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Section: Resultsmentioning

confidence: 99%

Pandemic Shocks and Household Spending*

Finck

Tillmann

2021

Oxf Bull Econ Stat

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“…The baseline rational expectations model fails to deliver an average marginal propensity to consume close to the empirical estimates. The latter tend to vary from 20% to 60% (see a summary of the empirical literature in Carroll et al, 2017). In contrast, the RE equilibrium has an average MPC around 7.7%.…”

Section: Marginal Propensity To Consumementioning

confidence: 99%

“…Table 5: Marginal propensity to consume. The range of empirical estimates is from Carroll et al (2017).…”

Section: Datamentioning

confidence: 99%

An Economy of Neural Networks: Learning from Heterogeneous Experiences

Kuriksha¹

2021

Preprint

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This paper proposes a new way to model behavioral agents in dynamic macro-financial environments. Agents are described as neural networks and learn policies from idiosyncratic past experiences. I investigate the feedback between irrationality and past outcomes in an economy with heterogeneous shocks similar to Aiyagari (1994). In the model, the rational expectations assumption is seriously violated because learning of a decision rule for savings is unstable. Agents who fall into learning traps save either excessively or save nothing, which provides a candidate explanation for several empirical puzzles about wealth distribution. Neural network agents have a higher average MPC and exhibit excess sensitivity of consumption. Learning can negatively affect intergenerational mobility.

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“…Additionally, it is also important to define the impacts of income inequality on the behavior of consumption and saving. Hence, inequality could matter for macroeconomics if households with different amounts of wealth respond differently to the same aggregate shock (Carroll, Slacalek, Tokuoka, & White, 2017).…”

Section: Behavioral Changes In Consumption Patternsmentioning

confidence: 99%

Threshold effects of housing affordability and financial development on the house price‐consumption nexus

2020

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The study explores the asymmetric effect of housing and financial wealth on household consumption behaviour using panel data from 24 OECD countries, spanning the period 2000-2016 by employing a financial development (FD) index (proxy for financial deepening) and the house price-to-income (HPI) ratio (proxy for housing affordability) through a threshold empirical framework. The analysis tests certain hypotheses, such as: (i) the housing wealth effect on consumption is stronger than its financial counterpart, (ii) overall wealth effects increase (decrease) during bubble (post bubble) periods, (iii) the higher level of financial development and the lower level of housing affordability ratio both result in stronger wealth effects, (iv) increasing wealth effects show a bubble formation. The results suggest that housing wealth has generally a greater positive effect on consumption. The effect of housing and financial wealth on consumption increases, depending on higher financial development and declining housing affordability. The evidence also suggests that the impact of housing and stock market wealth has increased during the dot.com and housing bubble periods.

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The Distribution of Wealth and the Marginal Propensity to Consume

Cited by 43 publications

References 40 publications

Pandemic Shocks and Household Spending*

Pandemic Shocks and Household Spending*

An Economy of Neural Networks: Learning from Heterogeneous Experiences

Threshold effects of housing affordability and financial development on the house price‐consumption nexus

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