Working Paper: NBER ID: w9356
Authors: Melvin Stephens Jr.
Abstract: This paper examines the consumption response to monthly paycheck receipt. Since the amount and arrival date of paychecks are known in advance, the receipt of a paycheck does not coincide with the receipt of new information. Under the basic rational expectations Life-Cycle/Permanent Income Hypothesis, household consumption should not respond to paycheck arrival. Using data from the United Kingdom's Family Expenditure Survey, this paper finds that household consumption is excessively sensitive to paycheck receipt. The results cannot be explained by any underlying monthly expenditure fluctuations common to all households. The presence of liquidity constraints as measured by wealth can account for the excess sensitivity results although the availability of credit cards cannot.
Keywords: No keywords provided
JEL Codes: D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| paycheck receipt (J33) | household consumption (D10) |
| liquidity constraints (E41) | household consumption sensitivity to paycheck timing (D12) |
| household wealth (D14) | liquidity constraints (E41) |