A Simple Mapping from MPCs to MPXs
David Laibson, Peter Maxted, Benjamin Moll · National Bureau of Economic Research · 2022
Standard consumption models assume a notional consumption flow that does not distinguish between nondurable and durable consumption.Such notional-consumption models generate notional marginal propensities to consume (MPC).By contrast, empirical work and policy discussions often highlight marginal propensities for expenditure (MPX), which incorporate spending on a durable stock.We compare the notional-consumption model to an isomorphic model with a durable stock, and map notional MPCs into MPXs.The mapping is especially simple for a one-period horizon: MPX = (1 -s + s/(r+d)) x MPC, with durable share s, real interest rate r, and durable depreciation rate d.