Intertemporal MPC and Shock Size

Tullio Jappelli (), Ettore Savoia () and Alessandro Sciacchetano
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Ettore Savoia: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Alessandro Sciacchetano: London School of Economics

No 443, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We elicit the intertemporal Marginal Propensity to Consume (iMPC) based on hypothetical different size lottery winnings through questions in the 2023-24 Italian Survey of Consumer Expectations (ISCE). Survey respondents were asked to allocate three hypothetical lottery winning amounts (€1,000, €10,000. and €50,000) between consumption and saving in both the year following the survey and over the longer term. The iMPC for a €1,000 win declines from 26% in the first year to about 1% five years after the shock. Larger win amounts have a smaller impact in the first year and a larger impact in the long run. The iMPC for a €10,000 (€50,000) prize declines from 19% (15%) in the first year to 2.5% (4%) in year five. Regardless of the size of the shock, the iMPC shows a weak negative relation to the cash-on-hand amount and a negative relation to income risk. We show that calibrated simulations of incomplete market models with borrowing constraints, income risk, and household heterogeneity are broadly consistent with these empirical findings.

Keywords: Intertemporal Marginal Propensity to Consume; Income Shocks; Shock Size (search for similar items in EconPapers)
JEL-codes: C80 C99 D12 D14 D15 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2024-10-01
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