The consumption response to positive and negative income shocks
Journal
Journal of Monetary Economics
Subject
Economics
Publishing details
Authors / Editors
Bunn P; Le Roux J; Reinold K; Surico P
Biographies
Publication Year
2018
Abstract
A set of newly added questions in the 2011 to 2014 Bank of England/NMG Consulting Survey reveals that British households tend to change their consumption by significantly more in reaction to temporary and unanticipated falls in income than to rises of the same size. Household balance sheet characteristics such as high debt-to-income ratios and small liquidity buffers, concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry. Our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies.
Keywords
MPC asymmetry; Household balance sheet; Debt; Heterogeneity; Transmission mechanism
Available on ECCH
No
