Working Paper: NBER ID: w29664
Authors: David Laibson; Peter Maxted; Benjamin Moll
Abstract: Standard consumption models assume a notional consumption flow that does not distinguish between nondurable and durable consumption. Such notional-consumption models generate notional marginal propensities to consume (MPC). By contrast, empirical work and policy discussions often highlight marginal propensities for expenditure (MPX), which incorporate spending on a durable stock. We compare the notional-consumption model to an isomorphic model with a durable stock, and map notional MPCs into MPXs. The mapping is especially simple for a one-period horizon: MPX = (1 - s + s/(r+d)) x MPC, with durable share s, real interest rate r, and durable depreciation rate d.
Keywords: consumption; marginal propensity to consume; marginal propensity for expenditure; durables; nondurables
JEL Codes: C82; D11; D15; E21; E60; E62; G50; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| notional consumption (E21) | notional MPC (E19) |
| notional MPC (E19) | total MPX (C59) |
| notional MPC (E19) | MPX on nondurables (L68) |
| durable consumption (E21) | total MPX (C59) |
| notional consumption (E21) | expenditure outcomes (H59) |