Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154088
Authors: 
Carroll, Christopher D.
Slacalek, Jiri
Tokuoka, Kiichi
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1655
Abstract: 
We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02_0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households).
Subjects: 
consumption dynamics
microfoundations
MPC
wealth inequality
JEL: 
D12
D31
D91
E21
Document Type: 
Working Paper

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