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Latent heterogeneity in the marginal propensity to consume

  • Series
  • Speaker
    Laura Pilossoph (Federal Reserve Bank of New York)
  • Field
  • Location
    Tinbergen Institute (Gustav Mahlerplein 117), Room 1.01
  • Date and time

    October 04, 2019
    16:00 - 17:15

We estimate the distribution of marginal propensities to consume (MPCs) using a new approach based on the fuzzy C-means algorithm (Dunn (1973), Bezdek (1981)). The algorithm generalizes the K-means methodology of Bonhomme and Manresa (2015) to better accommodate unobserved heterogeneous treatment effects in crosssectional and short panel data by explicitly incorporating a notion of uncertainty over an individual’s group assignment. We extend the fuzzy C-means approach from the cluster means case to a fully-general regression setting, as well as instrumental variables regression, and derive asymptotic properties of the corresponding estimators by showing that the problem admits a GMM formulation. We then apply the estimator to the 2008 tax rebate and household consumption data from the Consumer Expenditure Survey, exploiting the randomized timing of disbursements. We find a considerable degree of heterogeneity in MPCs, which varies by consumption goods. Finally, we provide evidence on the observable determinants of household MPCs, without requiring ex ante assumptions on such relationships, unlike previous studies.

Joint with Daniel Lewis and Davide Melcangi.