Financial concerns and the marginal propensity to consume in Covid times: evidence from UK survey data

Publication type

Research Paper

Series Number

965

Series

Bank of England Staff Working Papers

Authors

Publication date

March 15, 2022

Summary:

We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the Covid-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. We find that household expectations play a key role in determining differences in MPCs across households: households concerned about not being able to make ends meet have a 20% higher MPC than other households. This novel result holds when controlling for a range of important household-specific characteristics, including liquidity constraints. Our findings suggest that policies targeted to vulnerable and financially distressed households may prove more effective in stimulating demand than providing stimulus payments to all households.

ISSN

17499135

Subjects

Link

https://www.bankofengland.co.uk/working-paper/2022/financial-concerns-and-the-marginal-propensity-to-consume-in-covid-times

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