eprintid: 47813 rev_number: 6 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/04/78/13 datestamp: 2023-05-12 08:25:18 lastmod: 2023-05-12 08:25:18 status_changed: 2023-05-12 08:25:18 type: monograph metadata_visibility: show creators_name: Arellano, Manuel creators_name: Blundell, Richard creators_name: Bonhomme, Stéphane creators_name: Light, Jack creators_idrefppn: 076342727 creators_idrefppn: 034527966 creators_idrefppn: 076153053 title: Heterogeneity of Consumption Responses to Income Shocks in the Presence of Nonlinear Persistence ispublished: pub subjects: subjects_ECO abstract: In this paper we use the enhanced consumption data in the Panel Survey of Income Dynamics (PSID) from 2005-2017 to explore the transmission of income shocks to consumption. We build on the nonlinear quantile framework introduced in Arellano, Blundell and Bonhomme (2017). Our focus is on the estimation of consumption responses to persistent nonlinear income shocks in the presence of unobserved heterogeneity. To reliably estimate heterogeneous responses in our un-balanced panel, we develop Sequential Monte Carlo computational methods. We find substantial heterogeneity in consumption responses, and uncover latent types of households with different life-cycle consumption behavior. Ordering types according to their average log-consumption, we find that low-consumption types respond more strongly to income shocks at the beginning of the life cycle and when their assets are low, as standard life-cycle theory would predict. In contrast, high-consumption types respond less on average, and in a way that changes little with age or assets. We examine various mechanisms that might explain this heterogeneity. date: 2023-05 date_type: published publisher: TSE Working Paper official_url: http://tse-fr.eu/pub/128075 faculty: tse divisions: tse keywords: Nonlinear Income Persistence keywords: Consumption Dynamics keywords: Partial Insurance, Heterogeneity keywords: Panel Data language: en has_fulltext: TRUE subjectsJEL: JEL_C23 subjectsJEL: JEL_D31 subjectsJEL: JEL_D91 view_date_year: 2023 full_text_status: public monograph_type: working_paper series: TSE Working Paper volume: 23-1435 place_of_pub: Toulouse pages: 68 institution: Université Toulouse Capitole department: Toulouse School of Economics book_title: TSE Working Paper oai_identifier: oai:tse-fr.eu:128075 harvester_local_overwrite: pending harvester_local_overwrite: creators_idrefppn harvester_local_overwrite: department harvester_local_overwrite: institution harvester_local_overwrite: place_of_pub harvester_local_overwrite: pages oai_lastmod: 2023-05-04T08:04:22Z oai_set: tse site: ut1 citation: Arellano, Manuel , Blundell, Richard , Bonhomme, Stéphane and Light, Jack (2023) Heterogeneity of Consumption Responses to Income Shocks in the Presence of Nonlinear Persistence. TSE Working Paper, n. 23-1435, Toulouse document_url: https://publications.ut-capitole.fr/id/eprint/47813/1/wp_tse_1435.pdf