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MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy

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  • Miguel Ampudia
  • Russell Cooper
  • Julia Le Blanc
  • Guozhong Zhu

Abstract

This paper studies how household financial choices affect the impact of monetary policy on consumption. Based on micro data from four major euro area countries, we estimate key structural parameters using a simulated method of moments approach to match moments related to asset market participation rates, portfolio shares, and wealth-to-income ratios by education and country. The country-specific distributions of marginal propensities to consume (MPCs) out of income and financial wealth are not degenerate. Due to this MPC heterogeneity, monetary policy, operating through income and asset returns, has a differential impact on individuals within and across countries.

Suggested Citation

  • Miguel Ampudia & Russell Cooper & Julia Le Blanc & Guozhong Zhu, 2024. "MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(3), pages 343-388, July.
    • Handle: RePEc:aea:aejmac:v:16:y:2024:i:3:p:343-88
    DOI: 10.1257/mac.20210277
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    References listed on IDEAS

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    1. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
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    Cited by:

    1. Masuda, Kazuto, 2024. "The Special Theory of Employment, Exchange Rate, and Money With the Focus on Inflation and Technological Progress," SocArXiv nxshd, Center for Open Science.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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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