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Consumption Heterogeneity: Micro Drivers and Macro Implications
This paper explores the microfoundations of consumption models and quantifies the macro implications of consumption heterogeneity. We propose a new empirical method to estimate the response of consumption to permanent and transitory income shocks for different groups of households. We then apply this method to administrative data from Denmark. The large sample size, along with detailed household balance sheet information, allows us to finely divide the population along relevant dimensions. We find that households that stand to lose from an interest rate hike are significantly more responsive ...
In Search of Lost Time Aggregation
In 1960, Working noted that time aggregation of a random walk induces serial correlation in the first difference that is not present in the original series. This important contribution has been overlooked in a recent literature analyzing income and consumption in panel data. I examine Blundell, Pistaferri and Preston (2008) as an important example for which time aggregation has quantitatively large effects. Using new techniques to correct for the problem, I find the estimate for the partial insurance to transitory shocks, originally estimated to be 0.05, increases to 0.24. This larger ...