Work

Heterogeneity in MPCs and unexplained variation in consumption expenditures

Year: 2026

Type: article

Abstract: Quantile regression is a popular method to estimate the dispersion in MPCs in the population. We discuss the challenges that this method faces given the large unexplained variation in consumption expenditures in survey data. We highlight that quantile regression estimates do not recover the distribution of MPCs if either unexplained variation is due to measurement error or if differences in MPCs are partly driven by ex ante heterogeneity across households. To quantify the likely extent of the bias, we propose a simulation-based approach where we back out the underlying distribution of MPCs for a range of calibrations that attribute the unexplained variation to a split between unobserved factors and measurement noise. All results point in the same direction: the true distribution of MPCs is significantly more dispersed than what is estimated by quantile regression.

Source: Economics Letters

DOI: 10.1016/j.econlet.2026.112840

Authors: Filip Rozsypal, Kathrin Schlafmann

Institutions: Danmarks Nationalbank, Copenhagen Business School, Centre for Economic Policy Research

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,030

OpenAlex ID: W7126099336

FWCI:

Cites: 15

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