Working Paper: CEPR ID: DP17984
Authors: Francesco Saverio Gaudio; Ivan Petrella; Emiliano Santoro
Abstract: The dynamics of consumption inequality is important to understand asset pricing and its connection with the macroeconomy. We document marked heterogeneity in the transmission of different aggregate shocks to the consumption (and income) of U.S. assetholders relative to that of non-assetholders. Unlike technology shocks, factor-share shocks that redistribute resources from labor to capital income generate strong procyclicality in relative consumption, and are relevant drivers of time-variation in expected stock returns. A limited participation model rationalizing these findings highlights that asset prices mostly reflect risk stemming from redistribution between different income sources, which however has limited influence on macroeconomic fluctuations.
Keywords: Consumption; Income; Heterogeneity; Limited Participation; Asset Pricing
JEL Codes: D31; E13; E21; E25; E32; E44; G12; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| factor share shocks (D33) | consumption inequality (D31) |
| factor share shocks (D33) | consumption growth gap between assetholders and nonassetholders (E21) |
| neutral technology shocks (E39) | consumption inequality (D31) |
| neutral technology shocks (E39) | consumption of nonassetholders (G39) |
| neutral technology shocks (E39) | consumption of assetholders (E21) |
| fluctuations in consumption inequality (F62) | expected excess returns in the stock market (G17) |