Marginal Propensities to Consume Before and After the Great Recession

61 Pages Posted: 18 Feb 2021 Last revised: 19 Apr 2021

See all articles by Yunho Cho

Yunho Cho

Institute for Economic and Social Research, Jinan University

James Morley

University of Sydney - School of Economics

Aarti Singh

The University of Sydney - School of Economics

Date Written: April 19, 2021

Abstract

Using a quasi maximum likelihood approach for a semi-structural model, we find highly precise and distinct estimates of consumption responses to idiosyncratic income shocks for different groups of households. Homeowners stratified by liquid wealth exhibit the most dispersion in their marginal propensities to consume. Time-varying estimates support strong patterns of heterogeneity by homeownership status and balance sheet liquidity, with economically and statistically significant increases in the sensitivity of transitory consumption for homeowners, especially those with lower liquid wealth, following the collapse in house prices with the Great Recession. These findings support consumption theories that include housing as an illiquid asset.

Keywords: Marginal propensity to consume, Great Recession, household liquidity, housing wealth

JEL Classification: E21, C13, C33, D12, D14

Suggested Citation

Cho, Yunho and Morley, James and Singh, Aarti, Marginal Propensities to Consume Before and After the Great Recession (April 19, 2021). Available at SSRN: https://ssrn.com/abstract=3780359 or http://dx.doi.org/10.2139/ssrn.3780359

Yunho Cho (Contact Author)

Institute for Economic and Social Research, Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

James Morley

University of Sydney - School of Economics ( email )

Rm 607 Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

Aarti Singh

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://sydney.edu.au/arts/economics/staff/academic/aarti_singh.shtml

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