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Intertemporal MPC and Shock Size

Author

Listed:
  • Jappelli, Tullio

    (University of Naples Federico II, CSEF and CEPR)

  • Savoia, Ettore

    (Research Department, Central Bank of Sweden)

  • Sciacchetano, Alessandro

    (London School of Economics)

Abstract

We elicit the intertemporal Marginal Propensity to Consume (iMPC) based on hypothetical different size lottery winnings through questions in the 2023-24 Italian Survey of Consumer Expectations (ISCE). Survey respondents were asked to allocate three hypothetical lottery winning amounts (€1,000, €10,000. and €50,000) between consumption and saving in both the year following the survey and over the longer term. The iMPC for a €1,000 win declines from 26% in the first year to about 1% five years after the shock. Larger win amounts have a smaller impact in the first year and a larger impact in the long run. The iMPC for a €10,000 (€50,000) prize declines from 19% (15%) in the first year to 2.5% (4%) in year five. Regardless of the size of the shock, the iMPC shows a weak negative relation to the cash-on-hand amount and a negative relation to income risk. We show that calibrated simulations of incomplete market models with borrowing constraints, income risk, and household heterogeneity are broadly consistent with these empirical findings.

Suggested Citation

  • Jappelli, Tullio & Savoia, Ettore & Sciacchetano, Alessandro, 2024. "Intertemporal MPC and Shock Size," Working Paper Series 443, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0443
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    References listed on IDEAS

    as
    1. Asger Lau Andersen & Niels Johannesen & Adam Sheridan, 2024. "Dynamic Spending Responses to Wealth Shocks: Evidence from Quasi Lotteries on the Stock Market," American Economic Review: Insights, American Economic Association, vol. 6(3), pages 434-452, September.
    2. Crawley, Edmund & Theloudis, Alexandros, 2024. "Income Shocks and their Transmission into Consumption," Discussion Paper 2024-012, Tilburg University, Center for Economic Research.
    3. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    4. Jeppe Druedahl & Emil Bjerre Jensen & Soeren Leth-Petersen, 2022. "The Intertemporal Marginal Propensity to Consume out of Future Persistent Cash-Flows. Evidence from Transaction Data," CEBI working paper series 22-13, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    5. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Intertemporal Marginal Propensity to Consume; Income Shocks; Shock Size;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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