Benjamin Moll, London School of Economics and Political Science
Abstract: Standard consumption models assume a notional consumption flow that does not distinguish between nondurable and durable consumption. Such notional-consumption models generate notional marginal propensities to consume (MPC). By contrast, empirical work and policy discussions often highlight marginal propensities for expenditure (MPX), which incorporate spending on a durable stock. We compare the notional-consumption model to an isomorphic model with a durable stock, and map notional MPCs into MPXs. The mapping is especially simple for a one-period horizon: MPX = (1 - s + s/(r+delta))*MPC, with durable share s, real interest rate r, and durable depreciation rate delta.
Discussant: Stijn Van Nieuwerburgh, Columbia University
Abstract: This paper estimates the individual correlation between permanent earnings shocks and an aggregate shock affecting both earnings and stock market returns, exploiting the co-movements across agents' earnings shocks. These estimates imply larger hedging motives than previously thought in both Dutch and US data. They retain statistical significance in predicting both portfolio choice and participation when other measures do not. They explain participation both out-of-sample and for the same individual over time. The data consistently support the theoretical prediction that portfolio holdings of equities respond to such correlations, implying that individuals rely on asset markets to help hedge their earnings' shocks.
Abstract: House price expectations significantly influence households’ consumption decisions. Using experienced price growth (a weighted average of past price growth in local housing markets) as the expectation measure, I find that a one-standard-deviation increase in house price expectations leads to a 2% to 6% increase in real household spending. Results hold when using the experienced price growth of geographically distant relatives as an instrument. I further document no significant difference between the spending propensity of homeowners and renters exposed to the same level of experienced price growth, thus distinguishing the expectations channel from housing wealth and collateral channels.
Discussant: Tobin Hanspal, Vienna University of Economics and Business
Abstract: Little is known about the participation of small individual landlords in the rental market, and about rental income earned by households. Using unique tax filing data from Australia, we show that rental market participation is common. One in five retirement-age individuals, in both the middle and high-income groups, is a landlord. We then show that declines in interest rates over the last two decades are associated with increases in individuals' participation to the rental market, driven by the retirement age-group. Using both time-series and cross-sectional tests, we explore different mechanisms and find evidence consistent with reaching for income. Older individuals have a preference for income-paying assets, and as rates decline, substitute interest income with rental income. Finally, we show that our findings have implications for individual income exposure to local shocks and house prices.
Discussant: Laurent Bach, ESSEC Business School, Paris
