We now describe our approach to estimating the marginal propensity to consume
out of wealth and labor income.
In particular, the point estimate of the marginal propensity to consume
out of equity values is 0.04 for these two subperiods, close to 0.03 estimated using the full sample period.
But, the marginal propensity to consume
out of permanent income is close to unity and larger than that of transitory income.
At this point it has to be noted that in comparison to the analysis performed by Karpetis and Varelas (2005), the integration of monetary sector and government's budget constraint in Samuelson's (1939) model increase the value interval of marginal propensity to consume
, for which the diachronic movement of income is oscillatory.
If capital gains are measured with substantial error, while cash dividend income is measured precisely, standard errors-in-variables arguments will lead to an estimate of the marginal propensity to consume
from capital gains that is biased toward zero.
With the functional form (2.2), the marginal propensity to consume
is [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] where ln A = [B.sub.0].
The signs on the terms in the denominator tell us that an increase in the marginal propensity to consume
or invest will increase the multiplier while an increase in the marginal propensity to import will decrease it.
These households typically have a high marginal propensity to consume
. Their prevalence in the economy and the nature of their constraints have a sizable impact on consumption dynamics.
In economic terms, they have a low "marginal propensity to consume
," that is, they are unlikely to spend any tax relief they get.
***The inflationary effect was computed as a function of income, marginal propensity to consume
(MPC), and estimates on the price effect of the increased oil excise on the price of food
Notowidigdo, Northwestern University and NBER; and Jialan Wang, University of Illinois at Urbana-Champaign, "The Marginal Propensity to Consume
over the Business Cycle" (NBER Working Paper No.
Overall, our evidence offers some support for debt dependent multipliers being driven by a higher marginal propensity to consume
of debt-constrained households.