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MPCs in an emerging economy: Evidence from Peru

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  • Hong, Seungki
Abstract
This paper estimates the marginal propensity to consume (MPC) out of transitory income shocks for an emerging economy, Peru, using its nationally representative household survey. The mean quarterly MPC across Peruvian income deciles is 0.204, which translates to a mean annualized MPC of 0.545–0.592 under both model-free and model-based annualization methods. To compare Peruvian and U.S. MPCs reflecting the different reference periods of the underlying surveys, I employ a standard incomplete-market model. Two striking differences emerge. First, the mean annual MPC in Peru is three times as large as that in the U.S. Second, the MPCs are substantially more heterogeneous over income deciles in Peru than in the U.S. The model predicts that precautionary saving behavior drives both the higher mean MPC and stronger MPC heterogeneity in Peru.

Suggested Citation

  • Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:inecon:v:140:y:2023:i:c:s0022199622001441
    DOI: 10.1016/j.jinteco.2022.103712
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    More about this item

    Keywords

    Consumption; MPC; Precautionary saving; Emerging economy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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