The Micro Anatomy of Macro Consumption Adjustments

76 Pages Posted: 14 Oct 2020 Last revised: 12 Oct 2024

See all articles by RAFAEL GUNTIN

RAFAEL GUNTIN

affiliation not provided to SSRN

ottonellopablo@gmail.com Ottonello

University of Michigan at Ann Arbor

Diego Perez

New York University (NYU) - Department of Economics

Date Written: October 2020

Abstract

We study crises characterized by large adjustments of aggregate consumption through their microlevel patterns. We show that leading theories designed to explain aggregate consumption dynamics differ markedly in their cross-sectional predictions. While theories based on financial frictions predict that rich households with liquid assets should be able to smooth consumption during bad times, neoclassical theories predict that these agents would optimally adjust their consumption if crises severely affect their permanent income. Using microlevel data on several episodes of large aggregate-consumption adjustment, we document that rich households significantly adjust consumption relative to their income, consistent with the permanent-income hypothesis of consumption during crises. We discuss our findings' implications for the effectiveness of stabilization policies that target consumption during crises.

Suggested Citation

GUNTIN, RAFAEL and Ottonello, ottonellopablo@gmail.com and Perez, Diego J., The Micro Anatomy of Macro Consumption Adjustments (October 2020). NBER Working Paper No. w27917, Available at SSRN: https://ssrn.com/abstract=3709607

RAFAEL GUNTIN (Contact Author)

affiliation not provided to SSRN

Ottonellopablo@gmail.com Ottonello

University of Michigan at Ann Arbor

Diego J. Perez

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
298
PlumX Metrics