DP12025 Asymmetric Consumption Effects of Transitory Income Shocks

Author(s): Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli, Luigi Pistaferri, Maarten Van Rooij
Publication Date: May 2017
Keyword(s): Marginal Propensity, Positive and Negative Income Shocks, Transitory Income Shocks
JEL(s): D12, D14, E21
Programme Areas: Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12025

We use the responses of a representative sample of Dutch households to survey questions that ask how much they would consume of an unexpected, transitory, and positive income change, and by how much they would reduce their consumption in response to an unexpected, transitory, and negative income change. The questionnaire distinguishes between relatively small income changes (a one-month increase or drop in income), and relatively larger ones (equal to three months of income). The results are broadly in line with models of intertemporal choice with precautionary saving, borrowing constraints, and finite horizons.