MPC Heterogeneity and Household Balance Sheets

By A. Fagereng, M. Holm, G. Natvik. Social Science Research Network, 2016

205 citations recorded by the source corpus.

We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance sheets and characteristics such as education and income, it is the amount won, age, and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around US$1,500) are estimated to spend all within the year of winning. The corresponding estimate for high-liquidity winners of large prizes (US$8, 300–150,000) is slightly below one-half. While conventional models will struggle to account for such high MPC levels, we show that a two-asset life cycle model with a realistic earnings profile and a luxury bequest motive can account for both the time profile of consumption responses and their systematic covariation with observables. (JEL D12, D15, E21, G51, H24)

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Citations in the corpus

The Intertemporal Keynesian Cross (2018, unknown): “Using Walras’ law, it is simple to show that, given any path {Gt, Tt} satisfying the government’s intertemporal budget constraint (10), a 11See Fagereng et al. (2018) for evidence that households leave their illiquid asset positions almost entirely unchanged in response to income shocks.”
When Inequality Matters for Macro and Macro Matters for Inequality (2018, unknown): “This bimodality can be seen in figure 6, panel (a), and is consistent with recent work by Fagereng et al. (2016).53 Figure 6, panel (b), shows that only households with zero (or very negative) liquid wealth have substantial MPCs, even for households with positive illiquid assets.”
Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2019, background): “, 2013), even among higher income households (Kueng, 2018; Fagereng et al., 2019).”
Stock Market Returns and Consumption (2020, background): “9 See also Hartzmark and Solomon (2013) and Harris, Hartzmark and Solomon (2015) for the impact on stock prices of investors’ demand for dividend income. 10 See Baker (2017) and Kueng (2016) for estimates of MPC out of more regular income shocks. 11 See also Hastings and Shapiro (2013, 2017) for evi”
How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area (2018, background): “Fagereng et al. (2021) document evidence on the limited extent of rebalancing of illiquid and risky assets in response to receiving a lottery prize in Norwegian data.”
Monetary Policy and the Redistribution Channel (2017, unknown): “34 Using administrative Norwegian data and the MPCs of lottery winners, Fagereng et al. (2016) provide estimates of redistribution covariances that are broadly consistent with mine.”
Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism (2019, unknown): “(6)Unfortunately, the length and frequency of the sample we consider prevents us from using a high frequency identification strategy as in Gertler and Karadi (2015). (7)Results using the Romer and Romer (2004) shocks might be sensitive to the period in the early 1980s when monetary policy was conduc”
Microeconomic Heterogeneity and Macroeconomic Shocks (2018, unknown): “Examples include firm-level shocks, unemployment due to plant closings, stimulus payments and lottery winnings (e.g., Browning and Crossley, 2001; Johnson et al., 2006; Broda and Parker, 2014; Misra and Surico, 2014; Fagereng et al., 2016; Baker, 2018).”