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Heterogeneity and Aggregate Consumption: An Empirical Assessment

Author

Listed:
  • Jordi Galí
  • Davide Debortoli

Abstract

We provide an empirical assessment of a central implication of models with idiosyncratic income risk and incomplete markets: the existence of a role for the distribution of wealth in shaping the dynamics of aggregate consumption. Estimates of consumption Euler equation models extended to include wealth distribution statistics show the latter to have a negligible quantitative impact on aggregate consumption. This contrasts with the important role played by current disposable income, even when we use data for households with (relatively) high liquid wealth. The latter finding suggests the presence of a significant behavioral component behind the high sensitivity of consumption to current income.

Suggested Citation

  • Jordi Galí & Davide Debortoli, 2025. "Heterogeneity and Aggregate Consumption: An Empirical Assessment," Working Papers 1484, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1484
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    More about this item

    Keywords

    HANK models; idiosyncratic income risk; incomplete markets; representative household; TANK models;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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