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Effects of Unanticipated Income Shocks on Consumption in Mexico, 2000-2016

Author

Listed:
  • Llamosas-Rosas Irving
  • Rangel González Erick

Abstract

Changes on consumption of Mexican households generated by unexpected shocks in income, both permanent and transitory, are analyzed during the period 2000-2016 following the methodology developed by Blundell et al. (2008), which allows to evaluate which hypothesis on the response of consumption is more in line with the empirical evidence in Mexico: permanent income, complete markets, or partial insurance. The results suggest the presence of partial insurance on consumption in the face of permanent income shocks at the national level, although results are also consistent with the permanent income hypothesis. However, differences are found between regions when replicating the same analysis. Regarding temporary shocks, the coefficient of the effect of income shocks on consumption is not statistically significant at the national or regional level, which suggests a consumption smoothing by households in the face of temporary changes in their income.

Suggested Citation

  • Llamosas-Rosas Irving & Rangel González Erick, 2021. "Effects of Unanticipated Income Shocks on Consumption in Mexico, 2000-2016," Working Papers 2021-09, Banco de México.
    • Handle: RePEc:bdm:wpaper:2021-09
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7BCF527FC0-E757-D905-0294-D3C08B004B1B%7D.pdf
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    More about this item

    Keywords

    Consumption shocks; income; syntethic panel;
    All these keywords.

    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

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