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Wealth Shocks and MPC Heterogeneity

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We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints.

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  • Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Luigi Pistaferri & Maarten van Rooij, 2019. "Wealth Shocks and MPC Heterogeneity," CSEF Working Papers 531, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:531
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    Cited by:

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    2. Pavel Koval & Andrey Polbin, 2020. "Estimation of the consumption function of Russian households using RLMS microdata," Economics Bulletin, AccessEcon, vol. 40(3), pages 2254-2261.
    3. Tobin Hanspal & Annika Weber & Johannes Wohlfart, 2020. "Exposure to the COVID-19 Stock Market Crash and its Effect on Household Expectations," CEBI working paper series 20-13, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    4. Hanspal, Tobin & Weber, Annika & Wohlfart, Johannes, 2020. "Exposure to the COVID-19 stock market crash and its effect on household expectations," SAFE Working Paper Series 279, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Wealth Shocks; Marginal Propensity to Consume; Housing; Heterogeneity;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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