PRIN2017 - Hi-Di NET Seminar: Davide Melcangi (Federal Reserve Bank of New York)

Title: "Latent Heterogeneity in the Marginal Propensity to Consume"

  • Date: 30 November 2022 from 10:00 to 11:15

  • Event location: Microsoft Teams Meeting

Hi-Di NET:  Econometric Analysis of High Dimensional Models with Network Structures in Macroeconomics and Finance


We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression and the 2008 stimulus payments. By deviating from the standard approach of estimating MPC heterogeneity using interactions with observables, we can recover the full distribution of MPCs. We find households spent at least 8% of the rebate, and individual households used rebates for different goods. While many observables correlate individually with our estimated MPCs, these relationships disappear when tested jointly, except for income and the average propensity to consume. Household observables explain only 8% of MPC variation, highlighting the role of latent heterogeneity.

The paper is joint with Daniel Lewis (UCL) and Laura Pilossoph (Duke University)