The Consumption Response to Income Changes
55 Pages Posted: 30 Nov 2010
There are 4 versions of this paper
The Consumption Response to Income Changes
The Consumption Response to Income Changes
The Consumption Response to Income Changes
The Consumption Response to Income Changes
Date Written: September 1, 2010
Abstract
We review different empirical approaches that researchers have taken to estimate how consumption responds to income changes. We critically evaluate the empirical evidence on the sensitivity of consumption to predicted income changes, distinguishing between the traditional excess sensitivity tests, and the effect of predicted income increases and income declines. We also review studies that attempt to estimate the marginal propensity to consume out of income shocks, distinguishing between three different approaches: identifying episodes in which income changes unexpectedly, relying on the covariance restrictions that the theory imposes on the joint behavior of consumption and income growth, and combining realizations and expectations of income or consumption in surveys where data on subjective expectations are available.
Keywords: consumption smoothing, marginal propensity to consume
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Relative Wage Movements and the Distribution of Consumption
By Orazio Attanasio and Stephen J. Davis
-
Consumption and Risk Sharing Over the Life Cycle
By Kjetil Storesletten, Chris Telmer, ...
-
Intertemporal Choice and Inequality
By Angus Deaton and Christina Paxon
-
Partial Insurance, Information, and Consumption Dynamics
By Richard W. Blundell, Luigi Pistaferri, ...
-
Does Income Inequality Lead to Consumption Inequality? Evidence and Theory
By Dirk Krueger and Fabrizio Perri
-
Does Income Inequality Lead to Consumption Inequality? Evidence and Theory
By Dirk Krueger and Fabrizio Perri
-
Does Income Inequality Lead to Consumption Inequality? Evidence and Theory
By Dirk Krueger and Fabrizio Perri
-
Income Variance Dynamics and Heterogeneity
By Costas Meghir and Luigi Pistaferri
-
Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s
By David M. Cutler and Lawrence F. Katz
-
The Macroeconomic Implications of Rising Wage Inequality in the United States
By Jonathan Heathcote, Kjetil Storesletten, ...