Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286399 
Year of Publication: 
2024
Series/Report no.: 
Hannover Economic Papers (HEP) No. 717
Publisher: 
Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, Hannover
Abstract: 
Using representative household surveys conducted in Thailand and Vietnam during the COVID-19 pandemic, we find that the marginal propensity to consume is signicantly larger for positive than for negative income shocks. Moreover, we discover that the savings position plays a crucial role, as the effects are especially pronounced for households that experienced a decline in savings. This result contradicts a prediction from the life-cycle permanent income model with borrowing constraints as well as empirical evidence from industrialized countries. However, our ending is consistent with Kahneman and Tversky's prospect theory, according to which the combination of income uncertainty and loss aversion can lead households to react more strongly to positive shocks than to negative ones.
Subjects: 
Marginal propensity to consume (MPC)
Households' savings position
Unanticipated income shocks
COVID-19
Thailand
Vietnam
JEL: 
D12
D14
E21
H31
Document Type: 
Working Paper

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