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Jiri Slacalek
Research
- Division
Monetary Policy Research
- Current Position
-
Senior Lead Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,Mathematical and Quantitative Methods
- Other current responsibilities
- 2008-
Secretary, Household Finance and Consumption Network (European Central Bank)
- Education
- 1999-2004
PhD in Economics, Johns Hopkins University, Baltimore, USA
- 1999-2001
MA in Economics, Johns Hopkins University, Baltimore, USA
- 1993-1998
MA in Economics, Charles University, Prague, Czech Republic
- Professional experience
- 2020-
Lead Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 2017-2019
Principal Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 2007-2017
Economist/Senior Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 2004-2007
Researcher - Dept. of Macro Analysis and Forecasting, German Institute for Economic Research, DIW Berlin, Germany
- 20 February 2024
- RESEARCH BULLETIN - No. 116Details
- Abstract
- The 2021-22 surprise inflation surge had a major impact on households in the euro area. It reduced the real incomes and net wealth of most households as there was no immediate increase in nominal wages and pensions, nominal house prices and the nominal value of bonds, deposits, cash and debt following the rise in the price level. This influenced households’ present and future consumption and therefore their welfare. Although poorer households suffered most from the reduction in the purchasing power of their income, overall welfare losses were especially large for retirees because of the fall in the real value of their relatively large holdings of nominal assets. Conversely, younger and heavily indebted households benefited from the reduction in the real value of their liabilities. In this sense, this inflation episode mimicked an age-dependent tax. Indeed, not everyone was a net loser: while about 70% of households suffered a loss, the rest enjoyed moderate gains.
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 21 November 2023
- WORKING PAPER SERIES - No. 2877Details
- Abstract
- We measure the heterogeneous welfare effects of the recent inflation surge across households in the Euro Area. A simple framework illustrating the numerous channels of the transmission mechanism of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs –expressed as a share of 2021–22 income– were larger than a typical recession, and heterogeneous, e.g., 3% in France and 8% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the elderly losing up to 20%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions are the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies were critical in shielding the most vulnerable households.
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 25 April 2023
- WORKING PAPER SERIES - No. 2809Details
- Abstract
- Digitalisation has fundamentally changed the global economy and will continue to do so. This paper draws on economic research to identify some of its key implications for labour markets, inequality, e-commerce and the financial system. Beyond its potential to boost productivity and living standards, digitalisation: i) does not necessarily replace jobs on aggregate but changes their content; ii) tends to raise income and wealth inequality; iii) has ambiguous effects on competition; and iv) might change how the retail and financial sectors respond to monetary policy. Developing adequate (re-)training opportunities and providing a labour market, regulatory, and innovation environment which encourages the creation of “good jobs” is essential to improve productivity and equity while avoiding a polarisation of labour markets. E-commerce and fintech will likely lead to a faster transmission of monetary policy. The rise of fintech brings about new risks for regulatory arbitrage and has ramifications for financial stability.
- JEL Code
- D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D4 : Microeconomics→Market Structure and Pricing
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G2 : Financial Economics→Financial Institutions and Services - Network
- Discussion papers
- 25 April 2023
- DISCUSSION PAPER SERIES - No. 23Details
- Abstract
- Digitalisation has fundamentally changed the global economy and will continue to do so. This paper draws on economic research to identify some of its key implications for labour markets, inequality, e-commerce and the financial system. Beyond its potential to boost productivity and living standards, digitalisation: i) does not necessarily replace jobs on aggregate but changes their content; ii) tends to raise income and wealth inequality; iii) has ambiguous effects on competition; and iv) might change how the retail and financial sectors respond to monetary policy. Developing adequate (re-)training opportunities and providing a labour market, regulatory, and innovation environment which encourages the creation of “good jobs” is essential to improve productivity and equity while avoiding a polarisation of labour markets. E-commerce and fintech will likely lead to a faster transmission of monetary policy. The rise of fintech brings about new risks for regulatory arbitrage and has ramifications for financial stability.
- JEL Code
- D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D4 : Microeconomics→Market Structure and Pricing
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G2 : Financial Economics→Financial Institutions and Services
- 14 September 2022
- WORKING PAPER SERIES - No. 2719Details
- Abstract
- We use household surveys to describe differences in wages, income, wealth and liquid assets of households born in their country of residence (“natives”) vs. those born in other EU and non-EU countries (“immigrants”). The differences in wealth are more substantial than the differences in wages and incomes: immigrants earn on average about 30% lower wages than natives and hold roughly 60% less net wealth. For all variables, only a small fraction of differences between natives and immigrants—around 30%—can be explained by differences in demographics (age, gender, marital status, education, occupation, sector of employment). Immigrants are more likely to be liquidity constrained: while about 17% of natives can be labelled as “hand-to-mouth” (holding liquid assets worth less than two weeks of income), the corresponding share is 20% for households born in another EU country and 29% for those born outside the EU. Employment rates of immigrants are substantially more sensitive to fluctuations in aggregate employment. Monetary policy easing stimulates more strongly employment of individuals born outside the EU.
- JEL Code
- J15 : Labor and Demographic Economics→Demographic Economics→Economics of Minorities, Races, Indigenous Peoples, and Immigrants, Non-labor Discrimination
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy - Network
- Discussion papers
- 14 September 2022
- DISCUSSION PAPER SERIES - No. 21Details
- Abstract
- We use household surveys to describe differences in wages, income, wealth and liquid assets of households born in their country of residence (“natives”) vs. those born in other EU and non-EU countries (“immigrants”). The differences in wealth are more substantial than the differences in wages and incomes: immigrants earn on average about 30% lower wages than natives and hold roughly 60% less net wealth. For all variables, only a small fraction of differences between natives and immigrants—around 30%—can be explained by differences in demographics (age, gender, marital status, education, occupation, sector of employment). Immigrants are more likely to be liquidity constrained: while about 17% of natives can be labelled as “hand-to-mouth” (holding liquid assets worth less than two weeks of income), the corresponding share is 20% for households born in another EU country and 29% for those born outside the EU. Employment rates of immigrants are substantially more sensitive to fluctuations in aggregate employment. Monetary policy easing stimulates more strongly employment of individuals born outside the EU.
- JEL Code
- J15 : Labor and Demographic Economics→Demographic Economics→Economics of Minorities, Races, Indigenous Peoples, and Immigrants, Non-labor Discrimination
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 28 July 2022
- THE ECB BLOGRelated
- 19 October 2022
- THE ECB BLOG
- 14 September 2022
- THE ECB BLOG
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 275Details
- Abstract
- This report discusses the role of the European Union’s full employment objective in the conduct of the ECB’s monetary policy. It first reviews a range of indicators of full employment, highlights the heterogeneity of labour market outcomes within different groups in the population and across countries, and documents the flatness of the Phillips curve in the euro area. In this context, it is stressed that labour market structures and trend labour market outcomes are primarily determined by national economic policies. The report then recalls that, in many circumstances, inflation and employment move together and pursuing price stability is conducive to supporting employment. However, in response to economic shocks that give rise to a temporary trade-off between employment and inflation stabilisation, the ECB’s medium-term orientation in pursuing price stability is shown to provide flexibility to contribute to the achievement of the EU’s full employment objective. Regarding the conduct of monetary policy in a low interest rate environment, model-based simulations suggest that history-dependent policy approaches − which have been proposed to overcome lasting shortfalls of inflation due to the effective lower bound on nominal interest rates by a more persistent policy response to disinflationary shocks − can help to bring employment closer to full employment, even though their effectiveness depends on the strength of the postulated expectations channels. Finally, the importance of employment income and wealth inequality in the transmission of monetary policy strengthens the case for more persistent or forceful easing policies (in pursuit of price stability) when interest rates are constrained by their lower bound.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
- 24 March 2021
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 2, 2021Details
- Abstract
- This article reviews recent evidence on the interaction between monetary policy and household inequality. While economic inequality has been trending upwards in most advanced economies since the early 1980s, this analysis concludes that monetary policy has not been a major driver of those long-term trends. On the contrary, the accommodative monetary policies of recent years have had an equalising effect, particularly through employment gains for lower income households. Moreover, there is now more evidence showing that the distribution of income and wealth plays a key role in the transmission of monetary policy to household spending. However, while improvements to models and data have contributed to a better understanding of the ways in which household heterogeneity shapes the transmission of monetary policy, several unsolved puzzles remain, necessitating further research efforts.
- JEL Code
- D3 : Microeconomics→Distribution
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 13 October 2020
- RESEARCH BULLETIN - No. 75Details
- Abstract
- The 2020 US CARES Act (Coronavirus Aid, Relief, and Economic Security) aimed to bolster consumer spending. We model the spending and saving behaviour of households during the coronavirus (COVID-19) pandemic, differentiating between the employed, temporarily unemployed and persistently unemployed, and examine how the CARES Act should affect this behaviour. To do this we use a benchmark model which realistically captures the differences in income, wealth and spending between households, and which matches the responses to previous stimulus policies well. We extend the model to account for the fact that, during a lockdown, many types of spending are undesirable or impossible, and that some of the jobs that disappear during lockdown will not reappear when it is lifted. We estimate that, in the case of a short-lived lockdown (which was the median point of view in April 2020), the CARES Act should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. For a longer-lasting lockdown (if there is a “second wave” of the virus), an extension of enhanced unemployment benefits is likely to be necessary for consumption spending to recover quickly. We have made the modelling software available for other researchers, so that they can examine the consequences of alternative assumptions about the length of the lockdown, distribution of the stimulus payments, and other modelling choices.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 8 July 2020
- WORKING PAPER SERIES - No. 2441Details
- Abstract
- To predict the effects of the 2020 U.S. ‘CARES’ act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. If the lockdown lasts longer, an extension of enhanced unemployment benefits will likely be necessary if consumption spending is to recover.
- JEL Code
- D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 4 December 2019
- RESEARCH BULLETIN - No. 65Details
- Abstract
- Many economic models assume that households have up-to-date information. Here, we relax this assumption and see how that affects consumption at the household and aggregate level. To be specific, our model assumes that households only occasionally update their information about macroeconomic quantities. What’s unique about our model is that it can reconcile the very low persistence of consumption growth seen at the household level with it being substantially persistent at the aggregate level. In short, our model better fits micro and macro data. Concerning fiscal policy, our model can explain the fact that consumption reacts little to the announcement of a fiscal stimulus but substantially to the actual receipt of a stimulus payment.
- JEL Code
- D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 29 January 2019
- RESEARCH BULLETIN - No. 54Details
- Abstract
- “Quantitative easing” refers to central bank purchases of assets such as stocks and bonds to increase the money supply when interest rates are too low for conventional rate cuts to provide further policy accommodation. Quantitative easing in the euro area through the ECB’s asset purchase programme (APP) has stimulated economic activity and asset prices, affecting income and wealth inequality among households. It has decreased income inequality, mostly by reducing the unemployment rate for poorer households, but also, to a lesser extent, by increasing the wages of the employed. Quantitative easing has also helped to reduce net wealth inequality slightly through its positive impact on house prices.
- JEL Code
- D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies - Network
- Research Task Force (RTF)
- 30 October 2018
- WORKING PAPER SERIES - No. 2190Details
- Abstract
- This paper studies the effects of quantitative easing on income and wealth of individual euro area households. The aggregate effects of quantitative easing are estimated in a multi-country VAR model of the four largest euro area countries, in which key variables affecting household income and wealth are included, such as the unemployment rate, wages, interest rates, house prices and stock prices. The aggregate effects are distributed across the individual households by means of a reduced-form simulation on micro data from the Household Finance and Consumption Survey, capturing the income composition, the portfolio composition and the earnings heterogeneity channels of transmission. We find that the earnings heterogeneity channel plays a key role: quantitative easing compresses the income distribution since many households with lower incomes become employed. In contrast, monetary policy has only negligible effects on wealth inequality.
- JEL Code
- D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies - Network
- Household Finance and Consumption Network (HFCN)
- 18 July 2018
- DISCUSSION PAPER SERIES - No. 6Details
- Abstract
- This paper considers how monetary policy produces heterogeneous effects on euro area households, depending on the composition of their income and on the components of their wealth. We first review the existing evidence on how monetary policy affects income and wealth inequality. We then illustrate quantitatively how various channels of transmission—net interest rate exposure, intertemporal substitution and indirect income channels—affect individual euro area households. We find that the indirect income channel has an overwhelming importance, especially for households holding few or no liquid assets. The indirect income channel is therefore also a substantial driver of changes in consumption at the aggregate level.
- JEL Code
- D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 18 July 2018
- WORKING PAPER SERIES - No. 2170Details
- Abstract
- This paper considers how monetary policy produces heterogeneous effects on euro area households, depending on the composition of their income and on the components of their wealth. We first review the existing evidence on how monetary policy affects income and wealth inequality. We then illustrate quantitatively how various channels of transmission — net interest rate exposure, inter-temporal substitution and indirect income channels — affect individual euro area households. We find that the indirect income channel has an overwhelming importance, especially for households holding few or no liquid assets. The indirect income channel is therefore also a substantial driver of changes in consumption at the aggregate level.
- JEL Code
- D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies - Network
- Discussion papers
- 25 May 2018
- WORKING PAPER SERIES - No. 2152Details
- Abstract
- Macroeconomic models often invoke consumption "habits" to explain the substantial persistence of macroeconomic consumption growth. to explain the substantial But a large literature has found no evidence of habits in the micro-economic datasets that measure the behavior of individual households. We show that the apparent conflict can be explained by a model in which consumers have accurate knowledge of their personal circumstances but `sticky expectations' about the macro-economy. In our model, the persistence of aggregate consumption growth reflects consumers' imperfect attention to aggregate shocks. Our proposed degree of (macro) inattention has negligible utility costs, because aggregate shocks constitute only a tiny proportion of the uncertainty that consumers face.
- JEL Code
- D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 4 August 2014
- WORKING PAPER SERIES - No. 1705Details
- Abstract
- We extend household-level data from the Household Finance and Consumption Survey using aggregate series and micro-simulations to investigate heterogeneity in the euro area. We quantify shocks to wealth, income and financial pressure faced by various categories of households since the onset of the Great Recession. The shocks differ substantially both across countries and across economic and socio-demographic characteristics. We find that the rising unemployment rate disproportionately affected the income-poor, while the declining wealth the income-rich. Although borrowers benefited from the substantial decrease in interest rates, debt service-income and debt-income ratios for poor households went up as they faced falling incomes. Household deleveraging was primarily driven by the restrained mortgage borrowing by the young. In several countries and at the euro-area level the unprecedented declines in asset prices substantially contributed to the sluggish consumption growth driven by both rich and poor households: while the former were hit by large shocks to wealth, the latter also significantly cut their spending because of their high MPCs.
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth - Network
- Household Finance and Consumption Network (HFCN)
- 14 March 2014
- WORKING PAPER SERIES - No. 1655Details
- Abstract
- We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02_0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households).
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth - Network
- Household Finance and Consumption Network (HFCN)
- 10 March 2014
- WORKING PAPER SERIES - No. 1648Details
- Abstract
- Using new micro data on household wealth from fifteen European countries, the Household Finance and Consumption Survey, we first document the substantial cross-country variation in how various measures of wealth are distributed across individual households. Through the lens of a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks we then study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). We find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks and (iii) when we consider households only using liquid assets (rather than net wealth) to smooth consumption.
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth - Network
- Household Finance and Consumption Network (HFCN)
- 5 February 2014
- WORKING PAPER SERIES - No. 1633Details
- Abstract
- A large body of microeconomic evidence supports Friedman (1957)'s proposition that household income can be reasonably well described as having both transitory and permanent components. We show how to modify the widely-used macroeconomic model of Krusell and Smith (1998) to accommodate such a microeconomic income process. Our incorporation of substantial permanent income shocks helps our model to explain a substantial part of the large degree of empirical wealth heterogeneity that is unexplained in the baseline Krusell and Smith (1998) model, even without heterogeneity in preferences.
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
- 24 September 2012
- WORKING PAPER SERIES - No. 1474Details
- Abstract
- We argue that the U.S. personal saving rate's long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s-2007), and recent substantial increase (2008-2011) can all be interpreted using a parsimonious `buffer stock' model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between `target' and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate's long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.
- JEL Code
- E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 23 December 2010
- WORKING PAPER SERIES - No. 1283Details
- Abstract
- This paper presents a simple new method for measuring `wealth effects' on aggregate consumption. The method exploits the stickiness of consumption growth (sometimes interpreted as reflecting consumption `habits') to distinguish between immediate and eventual wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a change in housing wealth is about 2 cents, with a final eventual effect around 9 cents, substantially larger than the effect of shocks to financial wealth. We argue that our method is preferable to cointegration-based approaches, because neither theory nor evidence supports faith in the existence of a stable cointegrating vector.
- JEL Code
- E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
- 17 November 2009
- WORKING PAPER SERIES - No. 1117Details
- Abstract
- I investigate the effect of wealth on consumption in a new dataset with financial and housing wealth from 16 countries. The baseline estimation method based on the sluggishness of consumption growth implies that the eventual (long-run) marginal propensity to consume out of total wealth is 5 cents (averaged across countries). While the wealth effects are quite strong—between 4 and 6 cents—in countries with more developed mortgage markets and in market-based, Anglo-Saxon and non euro area economies, consumption only barely reacts to wealth elsewhere. The effect of housing wealth is somewhat smaller than that of financial wealth for most countries, but not for the US and the UK. The housing wealth effect has risen substantially after 1988 as it has become easier to borrow against housing wealth.
- JEL Code
- E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
- 24 August 2009
- WORKING PAPER SERIES - No. 1082Details
- Abstract
- Using the Consensus Economics dataset with individual expert forecasts from G7 countries we investigate determinants of disagreement (crosssectional dispersion of forecasts) about six key economic indicators. Disagreement about real variables (GDP, consumption, investment and unemployment) has a distinct dynamic from disagreement about nominal variables (inflation and interest rate). Disagreement about real variables intensifies strongly during recessions, including the current one (by about 40 percent in terms of the interquartile range). Disagreement about nominal variables rises with their level, has fallen after 1998 or so (by 30 percent), and is considerably lower under independent central banks (by 35 percent). Cross-sectional dispersion for both groups increases with uncertainty about the underlying actual indicators, though to a lesser extent for nominal series. Country-by-country regressions for inflation and interest rates reveal that both the level of disagreement and its sensitivity to macroeconomic variables tend to be larger in Italy, Japan and the United Kingdom, where central banks became independent only around the mid-1990s. These findings suggest that more credible monetary policy can substantially contribute to anchoring of expectations about nominal variables; its effects on disagreement about real variables are moderate.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
- 31 March 2009
- OCCASIONAL PAPER SERIES - No. 101Details
- Abstract
- This report analyses the main developments in housing finance in the euro area in the decade, covering the period from 1999 to 2007. It looks at mortgage indebtedness, various characteristics of loans for house purchase, the funding of such loans and the spreads between the interest rates on loans granted by banks and the interest rates banks had to pay on their funding, or the return they made on alternative investments. In addition, the report contains a comparison of key aspects of housing finance in the euro area with those in the United Kingdom and the United States. At the end, the report briefly discusses aspects of the transmission of monetary policy to the economy.
- JEL Code
- D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand - Network
- Eurosystem Monetary Transmission Network
- 9 January 2009
- OCCASIONAL PAPER SERIES - No. 100Details
- Abstract
- The first part of this paper provides a brief survey of the recent literature that employs survey data on household finance and consumption. Given the breadth of the topic, it focuses on issues that are particularly relevant for policy, namely: i) wealth effects on consumption, ii) housing prices and household indebtedness, iii) retirement income, consumption and pension reforms, iv) access to credit and credit constraints, v) financial innovation, consumption smoothing and portfolio selection and vi) wealth inequality. The second part uses concrete examples to summarise how results from such surveys feed into policy-making within the central banks that already conduct such surveys.
- JEL Code
- C42 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Survey Methods
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance - Network
- Eurosystem Monetary Transmission Network
- 23 September 2008
- WORKING PAPER SERIES - No. 930Details
- Abstract
- We estimate the sticky information Phillips curve model of Mankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in Italy about once each six months.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H50 : Public Economics→National Government Expenditures and Related Policies→General
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
- 31 March 2008
- WORKING PAPER SERIES - No. 887Details
- Abstract
- We extend the scarce evidence on labor supply in post-transition countries by estimating the wage elasticity of labor force participation in the Czech Republic. Using the household income survey data of 2002, we find that a one-percent rise in the gross wage increases the probability of working by 0.16 and 0.02 percentage points for women and men, respectively. Taking into account the tax and benefit system, these semi-elasticities fall to 0.06 for women and 0.01 for men. We interpret the difference between the estimates from the two specifications as a summary measure of the welfare system disincentives. The estimated wage elasticities lie at the lower end of the range of values reported for mature market economies. This finding is consistent with the stylized fact that the labor supply in countries with high labor force participation rates, such as in the Czech Republic, tends to be less sensitive to wages.
- JEL Code
- J22 : Labor and Demographic Economics→Demand and Supply of Labor→Time Allocation and Labor Supply
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
P30 : Economic Systems→Socialist Institutions and Their Transitions→General
- 19 March 2008
- WORKING PAPER SERIES - No. 886Details
- Abstract
- We estimate the degree of 'stickiness' in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of auto-correlation, with a stickiness parameter of about 0.7 on average across countries. The sticky-consumption-growth model outperforms the random walk model of Hall (1978), and typically fits the data better than the popular Campbell and Mankiw (1989) model. In several countries, the sticky-consumption-growth and Campbell-Mankiw models work about equally well.
- JEL Code
- C6 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling
D9 : Microeconomics→Intertemporal Choice
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- 2024
- Journal of Monetary Economics
- 2024
- Journal of Applied EconometricsHow Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area
- 2024
- Journal of Policy ModelingImmigration and the Distribution of Income, Consumption and Wealth in the Euro Area: Implications for Economic Policies
- 2021
- International Journal of Central BankingModeling the Consumption Response to the CARES Act
- 2020
- Journal of Economics Dynamics and Control
- 2020
- American Economic Journal: MacroeconomicsSticky Expectations and Consumption Dynamics
- 2018
- VoxEU
- 2017
- Quantitative EconomicsThe Distribution of Wealth and the Marginal Propensity to Consume
- 2016
- International Journal of Central BankingEurosystem Household Finance and Consumption Survey—Main Results on Assets, Debt and Saving
- 2016
- Journal of Policy ModelingHousehold Heterogeneity in the Euro Area Since the Onset of the Great Recession
- 2015
- Economics LettersBuffer Stock Saving in a Krusell-Smith World
- 2014
- American Economic Review (Papers and Proceedings)The Distribution of Wealth and the MPC: Implications of New European Data
- 2012
- Review of Economics and StatisticsDisagreement among Forecasters in G7 Countries
- 2011
- Review of Economics and StatisticsInternational Evidence on Sticky Consumption Growth
- 2011
- Czech Journal of Economics and Finance (Finance a uver)Labor Supply after Transition: Evidence from the Czech Republic
- 2011
- Journal of Money, Credit, and BankingHow Large Are Financial and Housing Wealth Effects? A New Approach
- 2009
- BE Journal of Macroeconomics (Topics)What Drives Personal Consumption? The Role of Housing and Financial Wealth
- 2008
- Journal of Money, Credit and BankingSticky information Phillips Curves: European Evidence
- 2008
- BE Journal of Macroeconomics (Topics)The Dynamics of European Inflation Expectations