The consumption of households with liquid financial assets responds much more to transitory income shocks than the permanent-income hypothesis predicts. That is, middle class households with assets act as if they face liquidity constraints. This paper addresses this puzzling observation with a...

American families lost close to $20 trillion in the early stages of the crisis of 2007-2009. Wealth remained well below its peak levels, even after the recovery had taken hold. Public policy can help families rebuild their wealth more quickly. Quicker and larger wealth gains will provide...

Existing evidence from U.S. middle-class households shows that their MPCs out of tax rebates greatly exceed the PIH's prediction and are weakly related to their liquid assets. The standard precautionary-saving model predicts the first fact but counterfactually requires MPCs to decrease with...