TY - JOUR
T1 - The marginal propensity to consume over the business cycle
AU - Gross, Tal
AU - Notowidigdo, Matthew J.
AU - Wang, Jialan
N1 - Funding Information:
Simon Gilchrist was coeditor for this article. The views expressed are those of the authors and do not necessarily reflect those of the Consumer Financial Protection Bureau or the United States. We thank David Berger, Mark Cole, Chris Carroll, Larry Christiano, Allen Ferrell, Eitan Goldman, Ben Keys, Kristoph Kleiner, Lorenz Kueng, Guido Lorenzoni, Neale Mahoney, and Michelle Obuhanich; seminar participants at the Consumer Financial Protection Bureau, Queens University, and the Institute for Fiscal Studies; and conference participants at the NBER Law and Economics, Midwestern Finance, Kellogg Household Financial Choices, Wabash River, Chicago Financial Institutions, and Boulder Consumer Financial Decision Making conferences for helpful comments and suggestions. We are grateful to three anonymous referees for excellent comments and suggestions that improved the paper. Filipe Pecas Correia, Peter Han, Anran Li, and Pinchuan Ong provided superb research assistance. We are thankful to Feng Liu for help with the analysis. The Institutional Review Board at the University of Illinois at Urbana-Champaign approved the survey of former bankruptcy filers, IRB #18096.
Publisher Copyright:
© 2020, American Economic Association.
PY - 2020/4/1
Y1 - 2020/4/1
N2 - We estimate how the marginal propensity to consume (MPC) out of liquidity varies over the business cycle. Ten years after a Chapter 7 bankruptcy, the bankruptcy flag is removed from the filer's credit report, generating an increase in credit score. In the year following flag removal, credit card limits increase by $778 and credit card balances increase by $290, implying an MPC of 0.37. Using cohorts of flag removals, we find that the MPC was 20 to 30 percent higher during the Great Recession, increased during the 2001 recession, and is positively correlated with the local unemployment rate.
AB - We estimate how the marginal propensity to consume (MPC) out of liquidity varies over the business cycle. Ten years after a Chapter 7 bankruptcy, the bankruptcy flag is removed from the filer's credit report, generating an increase in credit score. In the year following flag removal, credit card limits increase by $778 and credit card balances increase by $290, implying an MPC of 0.37. Using cohorts of flag removals, we find that the MPC was 20 to 30 percent higher during the Great Recession, increased during the 2001 recession, and is positively correlated with the local unemployment rate.
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U2 - 10.1257/mac.20160287
DO - 10.1257/mac.20160287
M3 - Article
AN - SCOPUS:85089270184
SN - 1945-7707
VL - 12
SP - 351
EP - 384
JO - American Economic Journal: Macroeconomics
JF - American Economic Journal: Macroeconomics
IS - 2
ER -