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Wealth shocks and MPC heterogeneity

Working Papers
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.  
Keywords: Wealth Shocks, Marginal Propensity to Consume, Housing, Heterogeneity.
JEL Classifications: D12, D14, E21.

Working paper no. 645

645 - Wealth shocks and MPC heterogeneity

Download 645 - Wealth shocks and MPC heterogeneity

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