What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?

María Luengo-Prado; Bent E. Sørensen

doi:10.1162/rest.90.1.65

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What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?

María Luengo-Prado¹; Bent E. Sørensen^2,3

¹ Universidad del Noreste · ² Center for Economic and Policy Research · ³ University of Houston

The Review of Economics and Statistics 2008

This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states; in particular, the MPC out of current income is higher in states where income is more persistent, and the MPC out of lagged income is lower in agricultural states. We show that the estimated MPCs can be matched by a model of forward-looking consumers that includes all of the following features: time aggregation, durable goods, impatience, credit constraints, and risk sharing.

DOI: 10.1162/rest.90.1.65
Volume: 90 (1)
Pages: 65-80
Language: en
Export: BibTeX
Sources: openalex crossref