Working Paper: Consumption Heterogeneity: Micro Drivers and Macro Implications
Working Paper - November 2018 - No. 129
This paper aims to test the microfoundations of consumption models and quantify the macro implications of heterogeneity in consumption behavior. We propose a new empirical method to estimate the sensitivity of consumption to permanent and transitory income shocks and apply it to administrative data from Denmark. We find that households who stand to lose from an interest rate hike are more sensitive to income shocks than those who stand to gain. This interest rate exposure channel is potentially more important than the standard intertemporal substitution channel.