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Time-Varying Expenditure Shares and Macroeconomic Dynamics

Author

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  • Benjamín García
  • Mario Giarda
  • Carlos Lizama
  • Damian Romero

Abstract

We examine the impact of income heterogeneity on macroeconomic dynamics by analyzing households' expenditure decisions across different goods over the business cycle. Using Chilean transaction-level expenditure data, we observe income-dependent systematic variations in expenditure shares over the business cycle, suggesting a relevant role for non-homothetic preferences. We embed these preferences into a Heterogeneous Agent New Keynesian model and analyze their influence on the transmission of fiscal transfers. We find two novel channels associated with non-homotheticities: aggregate consumption sensitivity to income and insurance through expenditure switching. In a calibration for Chile, we find that non-homotheticities lead to substantial amplification of the effects of fiscal transfers of up to fifty percent.

Suggested Citation

  • Benjamín García & Mario Giarda & Carlos Lizama & Damian Romero, 2023. "Time-Varying Expenditure Shares and Macroeconomic Dynamics," Working Papers Central Bank of Chile 1000, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:1000
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_1000.pdf
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    References listed on IDEAS

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    5. Adrien Auclert & Bence Bardóczy & Matthew Rognlie & Ludwig Straub, 2021. "Using the Sequence‐Space Jacobian to Solve and Estimate Heterogeneous‐Agent Models," Econometrica, Econometric Society, vol. 89(5), pages 2375-2408, September.
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    Cited by:

    1. Stephany Griffith-Jones & Mario Giarda & Jorge Arenas, 2025. "Firm and household heterogeneity at the Central Bank of Chile," Economic Policy Papers Central Bank of Chile 75, Central Bank of Chile.

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