TY  - JOUR
AU  - Jappelli,Tullio
AU  - Pistaferri,Luigi
TI  - The Consumption Response to Income Changes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15739
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15739
L1  - http://www.nber.org/papers/w15739.pdf
N1  - Author contact info:
Tullio Jappelli
Department of Economics
University of Naples Federico II
Via Cinzia 45
80126 Napoli, Italy
E-Mail: tullio.jappelli@unina.it

Luigi Pistaferri
Department of Economics
579 Serra Mall
Stanford University
Stanford, CA 94305-6072
Tel: 650/724-4904
Fax: 650/725-5702
E-Mail: pista@stanford.edu
AB  - We review different empirical approaches that researchers have taken to estimate how consumption responds to income changes. We critically evaluate the empirical evidence on the sensitivity of consumption to predicted income changes, distinguishing between the traditional excess sensitivity tests, and the effect of predicted income increases and income declines. We also review studies that attempt to estimate the marginal propensity to consume out of income shocks, distinguishing between three different approaches: identifying episodes in which income changes unexpectedly, relying on the covariance restrictions that the theory imposes on the joint behavior of consumption and income growth, and combining realizations and expectations of income or consumption in surveys where data on subjective expectations are available.
ER  -