Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265171 
Year of Publication: 
2022
Series/Report no.: 
Quaderni - Working Paper DSE No. 1172
Publisher: 
Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE), Bologna
Abstract: 
A theory in which the timing of consumer expectation adjustments is endogenously state-dependent and stochastic is proposed. These expectation adjustments generate highly heterogenous consumption responses to income windfalls: many households do not respond, those who do over-react, the marginal propensity to consume depends on windfall size and is asymmetric. We document these features in the Bank of England survey of consumers and find that they simultaneously rule out most previous explanations for these effects, including consumption adjustment cost and liquidity constraints. At the aggregate level, consumption is less sensitive to expansionary policies during recessions and its excess smoothness varies significantly over the business cycle with consumers' attention, a feature that we document in US data.
Subjects: 
Consumption
expectation adjustments
asymmetries
excess smoothness
JEL: 
D11
D84
E21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.