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The consumption response to positive and negative income shocks

Author

Listed:
  • Bunn, Philip
  • Le Roux, Jeanne
  • Reinold, Kate
  • Surico, Paolo

Abstract

A set of newly-added questions in the 2011–2014 Bank of England/NMG Consulting Survey reveals that British households tend to change their consumption by significantly more in reaction to temporary and unanticipated falls in income than to rises of the same size. Household balance sheet characteristics such as high debt-to-income ratios and small liquidity buffers, concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry. Our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies.

Suggested Citation

  • Bunn, Philip & Le Roux, Jeanne & Reinold, Kate & Surico, Paolo, 2018. "The consumption response to positive and negative income shocks," Journal of Monetary Economics, Elsevier, vol. 96(C), pages 1-15.
    • Handle: RePEc:eee:moneco:v:96:y:2018:i:c:p:1-15
    DOI: 10.1016/j.jmoneco.2017.11.007
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    More about this item

    Keywords

    MPC asymmetry; Household balance sheet; Debt; Heterogeneity; Transmission mechanism;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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