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  4. July 2024
  5. MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy

  • Miguel Ampudia
  • Russell Cooper
  • Julia Le Blanc
  • Guozhong Zhu
American Economic Journal: Macroeconomics
vol. 16, no. 3, July 2024
(pp. 343–88)
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Abstract

This paper studies how household financial choices affect the impact of monetary policy on consumption. Based on micro data from four major euro area countries, we estimate key structural parameters using a simulated method of moments approach to match moments related to asset market participation rates, portfolio shares, and wealth-to-income ratios by education and country. The country-specific distributions of marginal propensities to consume (MPCs) out of income and financial wealth are not degenerate. Due to this MPC heterogeneity, monetary policy, operating through income and asset returns, has a differential impact on individuals within and across countries.

Citation

Ampudia, Miguel, Russell Cooper, Julia Le Blanc, and Guozhong Zhu. 2024. "MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy." American Economic Journal: Macroeconomics, 16 (3): 343–88. DOI: 10.1257/mac.20210277

Additional Materials

JEL Classification

  • E21 Macroeconomics: Consumption; Saving; Wealth
  • E52 Monetary Policy
  • G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
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