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Working Paper
Do Households Substitute Intertemporally? 10 Structural Shocks That Suggest Not
I combine microdata on the intertemporal marginal propensity to consume with 10 structural macro shocks to identify the role of intertemporal substitution in consumption behavior. Although some of the structural shocks that I examine lead to large and persistent changes in real interest rates—which in many models would induce a large intertemporal substitution effect—I find no evidence that households shift the timing of their consumption in response to these interest rate changes. Indeed, changes to the expected path of income explain almost all the aggregate consumption response, ...
Working Paper
Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks
We estimate how much household spending responds directly to changes in interest rates. We develop a Bayesian procedure that uses the empirical impulse responses to macroeconomic shocks to discipline the consumer block of a HANK model. The procedure can be applied shock-by-shock or pooled jointly. We apply this method in two ways using 10 macroeconomic shocks: a structural model with sticky expectations over both income and interest rates, and a non-parametric estimation of the consumption-to-interest-rate Jacobian. We find no evidence that households respond directly to interest rates at any ...