Wealth Shocks and MPC Heterogeneity

Christelis, D. , Georgarakos, D., Jappelli, T., Pistaferri, L. and van Rooij, M. (2019) Wealth Shocks and MPC Heterogeneity. Working Paper. Social Science Research Network.

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Publisher's URL: https://doi.org/10.2139/ssrn.3400450

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, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints.

Item Type:Research Reports or Papers (Working Paper)
Keywords:Wealth shocks, marginal propensity to consume, housing, heterogeneity.
Status:Published
Glasgow Author(s) Enlighten ID:Christelis, Dr Dimitris
Authors: Christelis, D., Georgarakos, D., Jappelli, T., Pistaferri, L., and van Rooij, M.
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Publisher:Social Science Research Network
Published Online:06 June 2019
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