A Simple Mapping from MPCs to MPXs
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+d)) x MPC, with durable share s, real interest rate r, and durable depreciation rate d.
This research was supported by grants from the Pershing Square Fund for Research on the Foundations of Human Behavior, the Leverhulme Trust, and the European Union's Horizon 2020 research and innovation programme under grant number No. GA: 865227. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.