We use CEX repeated cross-section data on consumption and income, to evaluate the nature of increased income inequality in the 1980s and 90s. We decompose unexpected changes in family income into transitory and permanent, and idiosyncratic and aggregate components, and estimate the contribution...

This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and is...

This paper assesses the information content of two survey indicators for consumption developments in the near future for eight European countries in the period 1985-1998. Empirical work on this topic typically focuses on consumer confidence, the perceptions of buyers of consumption goods. This...

This paper explores the consequences of rising returns to human capital investment on the personal savings rate. Over the past two decades, the return to college education has increased relative to high school education leading economists to argue the presence of 'skill biased technological...

This paper investigates whether the inclusion of housing in a household portfolio is important to the household’s intertemporal decision making. Households hold portfolios of assets rather than a Treasury bill and/or a stock index and make their spending decisions based on expected total...

This paper investigates whether the rate of interest such as the Treasury bill rate or the rate of return such as the return on a household portfolio is more relevant to the household’s intertemporal decision making. In a current era, households are diversifiers (to use Tobin’s 1958 term)...

This paper explores the consequences of skill biased technological progress on the savings rates. The literature, both theoretical and empirical, on the causes and consequences of skill biased technological progress in the past few years has burgeoned considerably. So has the literature on...

In this paper we show that the solution to the standard consumer maximisation problem which is augmented by habit-persistence can imply a positive and linear relationship between changes in the level of savings and changes in present income. We show that these savings-income dynamics contrast...

The current literature offers two views on the nature of the income process. According to the first view, which we call the “restricted income profiles” (RIP) model (MaCurdy, 1982), individuals are subject to large and very persistent shocks, while facing similar life-cycle income profiles...

This paper investigates the quantitative importance of different savings motives on the distributions of wealth and consumption and aggregate capital accumulation by solving an overlapping generations model with intragenerational heterogeneity. Agents differ in age, ability, earnings shocks, and...