Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small-and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption. JEL Non-technical SummaryA prerequisite for the successful conduct of monetary policy is a satisfactory understanding of the monetary transmission mechanism -the ensemble of economic forces that link monetary policy to the aggregate performance of the economy. This paper is concerned with the transmission mechanism of monetary policy for the largest component of GDP: household consumption.Changes in interest rates may affect household consumption through both direct and indirect effects. Direct effects are those that operate even in the absence of any change in household labor income: when interest rates fall, intertemporal substitution induces households to save less or borrow more, and therefore to increase their consumption demand. In general equilibrium, additional indirect effects on consumption arise from the expansion in labor demand, and thus in labor income, that emanates from the direct effects of the original interest rate cut.Understanding the monetary transmission mechanism requires an assessment of the importance of these direct and indirect channels. The relative magnitude of these effects is determined by how strongly household consumption responds to interest rate and income changes. Our first result concerns Representative Agent New Keynesian (RANK) models. In these commonly used benchmark economies, the aggregate consumption response to a change in interest rates is driven entirely by the Euler equation of the representative household. This implies that for any reasonable parameterization, monetary policy in RANK models works almost exclusively through intertemporal su...
The “wealthy hand-to-mouth” are households that hold little or no liquid wealth, whether in cash or in checking or savings accounts, despite owning sizable amounts of illiquid assets (assets that carry a transaction cost, such as housing or retirement accounts). We use survey data on household portfolios for the United States, Canada, Australia, the United Kingdom, Germany, France, Italy, and Spain to document the share of such households across countries, their demographic characteristics, the composition of their balance sheets, and the persistence of hand-to-mouth status over their life cycle. The portfolio configuration of the wealthy hand-to-mouth suggests that these households may have a high marginal propensity to consume out of transitory income changes, a prediction for which we find empirical support in PSID data. We explain the implications of this group of consumers for macroeconomic modeling and fiscal policy analysis.
We assess the degree of consumption smoothing implicit in a calibrated life-cycle version of the standard incomplete-markets model, and we compare it to the empirical estimates of Blundell et al. (2008) (BPP hereafter). We find that households in the model have access to less consumption-smoothing against permanent earnings shocks than what is measured in the data. BPP estimate that 36% of permanent shocks are insurable (i.e., do not translate into consumption growth), whereas the model's counterpart of the BPP estimator varies between 7% and 22%, depending on the tightness of debt limits. In the model, the age profile of the insurance coefficient is sharply increasing, whereas BPP find no clear age slope in their estimate. Allowing for a plausible degree of "advance information" about future earnings does not reconcile the model-data gap. If earnings shocks display mean reversion, even with very high autocorrelation, then the average degree of consumption smoothing in the model agrees with the BPP empirical estimate, but its age profile remains steep. Finally, we show that the BPP estimator of the true insurance coefficient has, in general, a downward bias that grows as borrowing limits become tighter.
This article is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, whereas the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, whereas the other half is mostly due to differences in households' choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores instead of by shopping more frequently. mor.phol.o.gy (noun)The branch of biology that deals with the form and structure of organisms without consideration of function. * Manuscript
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