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The Micro Anatomy of Macro Consumption Adjustments

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  • Rafael Guntin
  • Pablo Ottonello
  • Diego Perez

Abstract

We study crises characterized by large adjustments of aggregate consumption through their microlevel patterns. We show that leading theories designed to explain aggregate consumption dynamics differ markedly in their cross-sectional predictions. While theories based on financial frictions predict that rich households with liquid assets should be able to smooth consumption during bad times, neoclassical theories predict that these agents would optimally adjust their consumption if crises severely affect their permanent income. Using microlevel data on several episodes of large aggregate-consumption adjustment, we document that rich households significantly adjust consumption relative to their income, consistent with the permanent-income hypothesis of consumption during crises. We discuss our findings' implications for the effectiveness of stabilization policies that target consumption during crises.

Suggested Citation

  • Rafael Guntin & Pablo Ottonello & Diego Perez, 2020. "The Micro Anatomy of Macro Consumption Adjustments," NBER Working Papers 27917, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27917
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    Cited by:

    1. Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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