ONLINE - Latent Heterogeneity in the Marginal Propensity to Consume

20.05.2020 14:15 – 27.05.2020 15:30

Webinar IEE

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR / ABSTRACT:

We estimate the distribution of marginal propensities to consume (MPCs) using anew approach based on the fuzzy C-means algorithm (Dunn (1973), Bezdek (1981)).The algorithm generalizes the K-means methodology of Bonhomme and Manresa (2015) to allow for uncertain group assignment and recover unobserved heterogeneous effects in cross-sectional and short-panel data. We extend the fuzzy C-means approach from the cluster means case to a fully general regression setting and derive asymptotic properties of the corresponding estimators by showing that the problem admits a GMM formulation. We apply the estimator to the 2008 tax rebate and household consumption data, exploiting the randomized timing of disbursements. We find considerable heterogeneity in MPCs, which varies by consumption good, and provide evidence on their observable determinants, without imposing ex ante assumptions onsuch relationships. Our aggregated heterogeneous results suggest the partial equilibrium consumption response to the stimulus was twice as large as homogeneous estimates imply.

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