This paper presents a simple new method for estimating the size of 'wealth effects' on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as 'habits' in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegration- based estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector.

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).

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.

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.

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.

We show that an estimated tractable 'buffer stock saving' model can match the 30-year decline in the U.S. saving rate leading up to 2007, the sharp increase during the Great Recession, and much of the intervening business cycle variation. In the model, saving depends on the gap between 'target' and actual wealth, with the target determined by measured credit availability and measured unemployment expectations. Following financial deregulation starting in the late 1970s, expanding credit supply explains the trend decline in saving, while fluctuations in wealth and consumer-survey-measured unemployment expectations capture much of the business-cycle variation, including the sharp rise during the Great Recession.

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.

Macroeconomic models often invoke consumption "habits" to explain the substantial persistence of macroeconomic consumption growth. But a large literature has found no evidence of habits in the microeconomic 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 macroeconomy. 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.