Can Consumers Distinguish Persistent from Transitory Income Shocks?
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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Can Consumers Distinguish Persistent from Transitory Income Shocks? / Druedahl, Jeppe; Jørgensen, Thomas Høgholm.
I: The Economic Journal, Bind 130, Nr. 632, 11.2020, s. 2410–2437.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Can Consumers Distinguish Persistent from Transitory Income Shocks?
AU - Druedahl, Jeppe
AU - Jørgensen, Thomas Høgholm
PY - 2020/11
Y1 - 2020/11
N2 - The degree to which consumers can distinguish persistent from transitory income shocks is paramount for consumption-saving dynamics. In particular, even a small amount of imperfect information causes a severe bias in conventional estimators of the marginal propensity to consume. We provide a novel method that can identify consumers’ degree of information by using panel data on income and consumption, even allowing for measurement error. Employing our method to data from the Panel Study of Income Dynamics, we find that households have almost perfect information. This robust result indicates that the conventional estimators of the marginal propensity to consume are on firm ground.
AB - The degree to which consumers can distinguish persistent from transitory income shocks is paramount for consumption-saving dynamics. In particular, even a small amount of imperfect information causes a severe bias in conventional estimators of the marginal propensity to consume. We provide a novel method that can identify consumers’ degree of information by using panel data on income and consumption, even allowing for measurement error. Employing our method to data from the Panel Study of Income Dynamics, we find that households have almost perfect information. This robust result indicates that the conventional estimators of the marginal propensity to consume are on firm ground.
U2 - 10.1093/ej/ueaa047
DO - 10.1093/ej/ueaa047
M3 - Journal article
VL - 130
SP - 2410
EP - 2437
JO - The Economic Journal
JF - The Economic Journal
SN - 0013-0133
IS - 632
ER -
ID: 252111260