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The Intertemporal Marginal Propensity to Consume out of Future Persistent Cash-Flows. Evidence from Transaction Data

Author

Listed:
  • Jeppe Druedahl

    (Department of Economics, University of Copenhagen and CEBI)

  • Emil Bjerre Jensen

    (Department of Economics, University of Copenhagen, CEBI and Nykredit)

  • Soeren Leth-Petersen

    (Department of Economics, University of Copenhagen, CEBI and CEPR)

Abstract

To analyze the effectiveness of stabilization policies which includes effects on households future income it is central to account for anticipation effects on consumption. We investigate this using high-frequency spending and balance sheet data from a major Danish bank. We examine the behavior of borrowers with adjustable rate mortgages, and exploit that the bank sends a letter before the annual reset containing advance information on the expected change in mortgage payments. We find that unconstrained households respond immediately, while liquidity constrained households instead wait and respond around the time the cash-flow-arrives. The cumulative response is similar across the liquidity distribution. This is in line with a standard buffer-stock consumption model, and implies that it is less effective to target stimulus to low liquidity households when the effect on household income is partly in the future.

Suggested Citation

  • 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).
    • Handle: RePEc:kud:kucebi:2213
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    File URL: https://www.econ.ku.dk/cebi/publikationer/working-papers/CEBI_WP_13-22.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jappelli, Tullio & Savoia, Ettore & Sciacchetano, Alessandro, 2024. "Intertemporal MPC and Shock Size," Working Paper Series 443, Sveriges Riksbank (Central Bank of Sweden).

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    More about this item

    Keywords

    Consumption; anticipation effects; intertemporal MPC; persistent shocks; mortgages; monetary policy; heterogeneous agent models;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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