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The Asymmetric Response Of Consumption To Income Changes And The Effect Of Liquid Wealth

Author

Listed:
  • Milan van den Heuvel
  • Benjamin Vandermarliere
  • Koen Schoors

Abstract

We investigate the consumption response to positive and negative income changes conditional on the presence of liquid wealth. By constructing a novel data set from transaction-level financial data, we home in on a population which holds minimal consumer and mortgage debt, and holds most of its wealth, if any, as liquid wealth. We find an asymmetric consumption response to income changes, with a higher response to income increases than to income decreases. We further find that this asymmetry can be explained by a higher consumption smoothing e ect of liquid wealth for income decreases than for income increases.

Suggested Citation

  • Milan van den Heuvel & Benjamin Vandermarliere & Koen Schoors, 2019. "The Asymmetric Response Of Consumption To Income Changes And The Effect Of Liquid Wealth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/958, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:19/958
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    References listed on IDEAS

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