IDEAS home Printed from https://ideas.repec.org/p/zbw/safewp/382.html
   My bibliography  Save this paper

Mamma Mia! Revealing hidden heterogeneity by PCA-biplot: MPC puzzle for Italy's elderly poor

Author

Listed:
  • Radermacher, Jan W.

Abstract

I investigate consumption patterns in Italy and use a PCA-biplot to discover a consumption puzzle for the elderly poor. Data from the third wave (2017) of the Eurosystem's Household Finance and Consumption Survey (HFCS) indicate that Italian poor old-aged households boast lower levels of the marginal propensity to consume (MPC) than suggested by the dominant consumption models. A customized regression analysis exhibits group differences with richer peers to be only half as large as prescribed by a traditional linear regression model. This analysis has benefited from a visualization technique for high-dimensional matrices related to the unsupervised machine learning literature. I demonstrate that PCA-biplots are a useful tool to reveal hidden relations and to help researchers to formulate simple research questions. The method is presented in detail and suggestions on incorporating it in the econometric modeling pipeline are given.

Suggested Citation

  • Radermacher, Jan W., 2023. "Mamma Mia! Revealing hidden heterogeneity by PCA-biplot: MPC puzzle for Italy's elderly poor," SAFE Working Paper Series 382, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:382
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/268743/1/1836338201.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-788, September.
    3. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    4. Enrico Spolaore & Romain Wacziarg, 2013. "How Deep Are the Roots of Economic Development?," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 325-369, June.
    5. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    6. James J. Choi & Adriana Z. Robertson, 2020. "What Matters to Individual Investors? Evidence from the Horse's Mouth," Journal of Finance, American Finance Association, vol. 75(4), pages 1965-2020, August.
    7. Tullio Jappelli & Luigi Pistaferri, 2020. "Reported MPC and Unobserved Heterogeneity," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 275-297, November.
    8. Arna Olafsson & Michaela Pagel, 2018. "The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4398-4446.
    9. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-172, March.
    10. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February.
    11. Schwerdt, Guido, 2005. "Why does consumption fall at retirement? Evidence from Germany," Economics Letters, Elsevier, vol. 89(3), pages 300-305, December.
    12. Walter Dolde & James Tobin, 1971. "Wealth, Liquidity, and Consumption," Cowles Foundation Discussion Papers 311, Cowles Foundation for Research in Economics, Yale University.
    13. Stefan Wager & Susan Athey, 2018. "Estimation and Inference of Heterogeneous Treatment Effects using Random Forests," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 113(523), pages 1228-1242, July.
    14. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    15. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    16. repec:fth:harver:1435 is not listed on IDEAS
    17. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    18. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    19. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    20. 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.
    21. Susan Athey & Guido W. Imbens, 2017. "The State of Applied Econometrics: Causality and Policy Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 3-32, Spring.
    22. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, September.
    23. Dean Karlan & Jonathan Zinman, 2008. "Lying About Borrowing," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 510-521, 04-05.
    24. Tullio Jappelli, 2005. "The life-cycle hypothesis, fiscal policy and social security," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 173-186.
    25. Olsson, Ola & Hibbs, Douglas Jr., 2005. "Biogeography and long-run economic development," European Economic Review, Elsevier, vol. 49(4), pages 909-938, May.
    26. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    27. Mark Aguiar & Erik Hurst, 2013. "Deconstructing Life Cycle Expenditure," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 437-492.
    28. Greg Kaplan & Giovanni L. Violante, 2014. "A Tale of Two Stimulus Payments: 2001 versus 2008," American Economic Review, American Economic Association, vol. 104(5), pages 116-121, May.
    29. Steven J. Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, May.
    30. Broda, Christian & Parker, Jonathan A., 2014. "The Economic Stimulus Payments of 2008 and the aggregate demand for consumption," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 20-36.
    31. Arna Olafsson & Michaela Pagel, 2018. "The Retirement-Consumption Puzzle: New Evidence from Personal Finances," NBER Working Papers 24405, National Bureau of Economic Research, Inc.
    32. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David B. Huffman & Uwe Sunde, 2017. "Global Evidence on Economic Preferences," NBER Working Papers 23943, National Bureau of Economic Research, Inc.
    33. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
    34. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David Huffman & Uwe Sunde, 2018. "Global Evidence on Economic Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1645-1692.
    35. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-192, May.
    36. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 77-153.
    37. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
    38. Nemeczek, Fabian & Radermacher, Jan, 2022. "Personality-augmented MPC: Linking survey and transaction data to explain MPC heterogeneity by Big Five personality traits," SAFE Working Paper Series 348, Leibniz Institute for Financial Research SAFE.
    39. 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.
    40. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 77-153.
    41. Deon Filmer & Lant Pritchett, 2001. "Estimating Wealth Effects Without Expenditure Data—Or Tears: An Application To Educational Enrollments In States Of India," Demography, Springer;Population Association of America (PAA), vol. 38(1), pages 115-132, February.
    42. A. L. Robb & J. B. Burbidge, 1989. "Consumption, Income, and Retirement," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 522-542, August.
    43. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
    44. R. Glenn Hubbard & Kenneth L. Judd, 1986. "Liquidity Constraints, Fiscal Policy, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 1-60.
    45. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    46. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Luigi Pistaferri & Maarten van Rooij, 2019. "Asymmetric Consumption Effects of Transitory Income Shocks," The Economic Journal, Royal Economic Society, vol. 129(622), pages 2322-2341.
    47. Mariger, Randall P, 1987. "A Life-cycle Consumption Model with Liquidity Contraints: Theory and Empirical Results," Econometrica, Econometric Society, vol. 55(3), pages 533-557, May.
    48. Fifield, S G M & Power, D M & Sinclair, C D, 2002. "Macroeconomic Factors and Share Returns: An Analysis Using Emerging Market Data," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 51-62, January.
    49. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
    50. Andini, Monica & Ciani, Emanuele & de Blasio, Guido & D'Ignazio, Alessio & Salvestrini, Viola, 2018. "Targeting with machine learning: An application to a tax rebate program in Italy," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 86-102.
    51. Antonides, Gerrit & Manon de Groot, I. & Fred van Raaij, W., 2011. "Mental budgeting and the management of household finance," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 546-555, August.
    52. Jappelli, Tullio & Pistaferri, Luigi, 2017. "The Economics of Consumption: Theory and Evidence," OUP Catalogue, Oxford University Press, number 9780199383153.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dutt, Satyajit & Radermacher, Jan W., 2023. "Age, wealth, and the MPC in Europe: A supervised machine learning approach," SAFE Working Paper Series 383, Leibniz Institute for Financial Research SAFE.
    2. Daria Pignalosa, 2021. "The Euler Equation Approach: Critical Implications of Recent Developments in the Theory of Intertemporal Choice," Bulletin of Political Economy, Bulletin of Political Economy, vol. 15(1), pages 1-43, June.
    3. Choi, Kyoung Jin & Jeon, Junkee & Koo, Hyeng Keun, 2022. "Intertemporal preference with loss aversion: Consumption and risk-attitude," Journal of Economic Theory, Elsevier, vol. 200(C).
    4. Bräuer, Konstantin & Hackethal, Andreas & Hanspal, Tobin, 2020. "Consuming dividends," SAFE Working Paper Series 280, Leibniz Institute for Financial Research SAFE.
    5. Bernard, René, 2023. "Mental accounting and the marginal propensity to consume," Discussion Papers 13/2023, Deutsche Bundesbank.
    6. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    7. Arna Vardardottir & Michaela Pagel, 2016. "The Liquid Hand-to-Mouth: Evidence from a Personal Finance Management Software," 2016 Meeting Papers 789, Society for Economic Dynamics.
    8. Arna Olafsson & Michaela Pagel, 2018. "The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4398-4446.
    9. Campbell, J.R. & Hercowitz, Zvi, 2018. "Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)," Discussion Paper 2018-039, Tilburg University, Center for Economic Research.
    10. Brian Baugh & Itzhak Ben-David & Hoonsuk Park & Jonathan A. Parker, 2021. "Asymmetric Consumption Smoothing," American Economic Review, American Economic Association, vol. 111(1), pages 192-230, January.
    11. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    12. Rong Hai & Dirk Krueger & Andrew Postlewaite, 2020. "On the welfare cost of consumption fluctuations in the presence of memorable goods," Quantitative Economics, Econometric Society, vol. 11(4), pages 1177-1214, November.
    13. David Cashin & Jamie Lenney & Byron Lutz & William Peterman, 2018. "Fiscal policy and aggregate demand in the USA before, during, and following the Great Recession," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1519-1558, December.
    14. Bernard, René, 2022. "Mental Accounting and the Marginal Propensity to Consume," VfS Annual Conference 2022 (Basel): Big Data in Economics 264186, Verein für Socialpolitik / German Economic Association.
    15. Tomas Havranek & Anna Sokolova, 2020. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say 'Probably Not'," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 97-122, January.
    16. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    17. Peter Ganong & Pascal Noel, 2019. "Consumer Spending during Unemployment: Positive and Normative Implications," American Economic Review, American Economic Association, vol. 109(7), pages 2383-2424, July.
    18. Toshiyuki Uemura & Yoshimi Adachi & Tomoki Kitamura, 2017. "Effects of Individual Resident Tax on the Consumption of Near-Retired Households in Japan," Discussion Paper Series 161, School of Economics, Kwansei Gakuin University, revised May 2017.
    19. Lucchetti, Riccardo & Pedini, Luca & Pigini, Claudia, 2022. "No such thing as the perfect match: Bayesian Model Averaging for treatment evaluation," Economic Modelling, Elsevier, vol. 107(C).
    20. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 77-153.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:safewp:382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/csafede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.