Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods - Archive ouverte HAL Access content directly
Journal Articles American Economic Journal: Macroeconomics Year : 2022

Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods

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Jeanne Commault

Abstract

Studies based on natural experiments find that consumption responds strongly and significantly to a transitory variation in income, while semistructural estimations find no pass-through of transitory shocks to consumption. I develop a more robust semistructural estimator that relaxes the assumption that log consumption is a random walk. The robust pass-through estimate is significant and large, implying a yearly marginal propensity to consume of 0.32, close to the natural experiment findings. The robust estimator performs well in numerical simulations of a life cycle model, while nonrobust estimators do not. The difference between the two in the simulations is similar to their difference in the survey data.
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Dates and versions

hal-03947994 , version 1 (19-01-2023)

Licence

Attribution - NonCommercial - NoDerivatives - CC BY 4.0

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Jeanne Commault. Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods. American Economic Journal: Macroeconomics, 2022, 14 (2), pp.96-122. ⟨10.1257/mac.20190296⟩. ⟨hal-03947994⟩
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