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Consumption Heterogeneity: Micro Drivers and Macro Implications

Author

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  • Edmund Crawley
  • Andreas Kuchler

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.

Suggested Citation

  • Edmund Crawley & Andreas Kuchler, 2023. "Consumption Heterogeneity: Micro Drivers and Macro Implications," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(1), pages 314-341, January.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:1:p:314-41
    DOI: 10.1257/mac.20200352
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    Citations

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    Cited by:

    1. Paul Hubert & Frédérique Savignac, 2023. "Monetary Policy and Labor Income Inequality: the Role of Extensive and Intensive Margins," Working Papers hal-04524715, HAL.
    2. Edmund Crawley & Alexandros Theloudis, 2024. "Income Shocks and their Transmission into Consumption," Papers 2404.12214, arXiv.org.
    3. Riccardo De Bonis & Danilo Liberati & John Muellbauer & Concetta Rondinelli, 2023. "Why net worth is the wrong concept for explaining consumption: evidence from Italy," Economics Series Working Papers 1026, University of Oxford, Department of Economics.
    4. Daniel H. Cooper & Barry Z. Cynamon & Steven Fazzari, 2023. "Sustainable Consumption and the Comprehensive Economic Well-Being of American Households," Working Papers 23-5, Federal Reserve Bank of Boston.
    5. Garbinti, Bertrand & Lamarche, Pierre & Savignac, Frederique, 2024. "Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth," CEPR Discussion Papers 19413, C.E.P.R. Discussion Papers.
    6. Kozo UEDA, 2023. "Marginal Propensity to Consume and Personal Characteristics: Evidence from Bank Transaction Data and Survey," CIGS Working Paper Series 23-007E, The Canon Institute for Global Studies.
    7. Dominic Cucic & Denis Gorea, 2024. "Non-bank lending and the transmission of monetary policy," BIS Working Papers 1211, Bank for International Settlements.
    8. Ghosh, Anisha & Theloudis, Alexandros, 2023. "Consumption Partial Insurance in the Presence of Tail Income Risk," Other publications TiSEM c8da0a17-57cb-40bf-ab61-6, Tilburg University, School of Economics and Management.
    9. Gizem Koşar & Davide Melcangi & Laura Pilossoph & David Wiczer, 2023. "Stimulus through Insurance: The Marginal Propensity to Repay Debt," Staff Reports 1065, Federal Reserve Bank of New York.
    10. Bertrand Garbinti & Pierre Lamarche & Fredérique Savignac, 2024. "Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth," Working Papers 2022-02, Center for Research in Economics and Statistics.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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