This paper explores whether habit formation in the representative agent’s preferences can explain two failures of the standard permanent income model with intertemporally separable utility: the sensitivity of consumption to lagged consumer sentiment and to predictable changes in current income...

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

Analyzing account-level data from an account aggregator, we find that households increase consumption when they receive (expected) tax refunds, as if they face liquidity constraints. However, these same households smooth consumption when making payments in other years, primarily by transferring...

In this paper, we analyze the wealth accumulation and saving behavior of the retired elderly in Italy using micro data from the "Survey of Italian Households' Income and Wealth," a panel survey of households conducted every two years by the Bank of Italy. We find that, on average, the retired...

This paper aims to fill the gaps in the analysis of risk‐sharing channels at the microlevel, both within and across households. Using data from the Bank of Italy's Survey on Household Income and Wealth covering the financial crisis, we are able to quantify in a unified and consistent framework...

Using detailed micro-data, this paper documents that households with lower income risk (and higher income levels) exhibit a higher Marginal Propensity to Consume (MPC) in response to transitory income shocks, all else being equal. This finding is particularly significant among unconstrained...

Recent theoretical advances in consumption theory suggest that there may exist predictable consumption surges which, if not taken sufficiently into account in forecasting, may lead to predictable forecast errors. We use this insight to identify economic variables that might help improve the...