The Consumption Response to Income Changes
AbstractWe review different empirical approaches that researchers have taken to estimate how consumption responds to income changes. We critically evaluate the empirical evidence on the sensitivity of consumption to predicted income changes, distinguishing between the traditional excess sensitivity tests and the effect of predicted income increases and income declines. We also review studies that attempt to estimate the marginal propensity to consume out of income shocks, distinguishing between three different approaches: identifying episodes in which income changes unexpectedly, relying on the covariance restrictions that the theory imposes on the joint behavior of consumption and income growth, and combining realizations and expectations of income or consumption in surveys in which data on subjective expectations are available.
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Bibliographic InfoArticle provided by Annual Reviews in its journal Annual Review of Economics.
Volume (Year): 2 (2010)
Issue (Month): 1 (09)
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Other versions of this item:
- Jappelli, Tullio & Pistaferri, Luigi, 2010. "The Consumption Response to Income Changes," CEPR Discussion Papers 7680, C.E.P.R. Discussion Papers.
- Tullio Jappelli & Luigi Pistaferri, 2009. "The Consumption Response to Income Changes," CSEF Working Papers 237, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," NBER Working Papers 15739, National Bureau of Economic Research, Inc.
- Tullio Jappeli & Luigi Pistaferri, 2009. "The Consumption Response to Income Changes," Discussion Papers 08-052, Stanford Institute for Economic Policy Research.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
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