WORKING PAPERS

Standard consumption theory predicts that marginal propensities to consume (MPCs) decline with cash-on-hand. By introducing heterogeneity in the curvature of the consumption function, I show that this relationship reflects only local heterogeneity: it holds within a given concave function but not necessarily across functions with different degrees of concavity—driven by heterogeneity in income risk, preferences, or constraints. Stronger concavity leads to a steeper MPC decline with cash, introducing a “curvature effect” that captures asset dynamics beyond levels. When more concave types have low income, the curvature effect can dominate, making cash-on-hand an insufficient statistic. I formalize this mechanism by deriving new indices of intertemporal prudence and risk aversion, and apply it to study labor income risk heterogeneity. Two key predictions are verified empirically: (i) higher risk lowers MPCs, ceteris paribus; (ii) high-cash, low-risk households (Safe Non-Hand-to-Mouth) exhibit higher MPCs. These findings imply a new fiscal trade-off and challenge standard aggregation results.

This paper studies how monetary policy affects individual consumption in a Heterogeneous Agent New Keynesian (HANK) model with ex-ante heterogeneity in the income processes. In this model, lower-earning households face higher and more countercyclical income risk. This unequal incidence lowers their Marginal Propensity to Consume (MPC) relative to safer and higher-earning households at the same positive wealth level. In this environment, the effects of a monetary tightening operate along and within the wealth distribution, revealing that income risk heterogeneity amplifies the equilibrium response of aggregate consumption and generates a more persistent output contraction. Unlike standard HANKs, this amplification is driven by the larger elasticities of unconstrained households with higher earnings and lower risk, whose consumption share accounts for the bulk of aggregate consumption.

We study the role of heterogeneity in the revenues of individual firms for euro area macroeconomic dynamics. To this end, we specify two models: a standard aggregate vector autoregressive model (VAR) and an ``heterogeneous VAR'' (HVAR). The VAR model includes only aggregate data, while the HVAR model also incorporates the feedback loop between firms' revenue distribution and aggregate variables. Our results demonstrate that the behavior of firms' revenue distribution plays a significant role in explaining the dynamics of key euro area macroeconomic variables.

We elicit the intertemporal Marginal Propensity to Consume (iMPC) based on hypothetical different-size lottery winnings through questions in the 2023-24 Italian Survey of Consumer Expectations (ISCE). Survey respondents were asked to allocate three hypothetical lottery winning amounts (€1,000, €10,000. and €50,000) between consumption and saving in both the year following the survey and over the longer term. The iMPC for a €1,000 win declines from 26% in the first year to about 1% five years after the shock. Larger win amounts have a smaller impact in the first year and a larger impact in the long run. The iMPC for a €10,000 (€50,000) prize declines from 19% (15%) in the first year to 2.5% (4%) in year five. Regardless of the size of the shock, the iMPC shows a weak negative relation to the cash-on-hand amount and a negative relation to income risk. We show that calibrated simulations of incomplete market models with borrowing constraints, income risk, and household heterogeneity are broadly consistent with these empirical findings.