Micro MPCs and Macro Counterfactuals: The Case of the 2008 Rebates
Marleau Lecture Series
Oct 13, 2023 — 11:30 a.m. to 1 p.m.
Abstract: We present evidence that the high estimated MPCs from the leading household studies result in implausible macroeconomic counterfactuals. Using the 2008 tax rebate as a case study, we calibrate a standard medium-scale New Keynesian model with the estimated micro MPCs to construct counterfactual macroeconomic consumption paths in the absence of a rebate. The counterfactual paths imply that consumption expenditures would have plummeted in spring and summer 2008 and then recovered when Lehman Brothers failed in September 2008. We use narratives and forecasts to argue that these paths are implausible. We then show that standard two-way fixed effect estimates of the micro MPCs are upward biased. When we correct for the biases, we estimate smaller micro MPCs than the previous literature. We also show that reasonable modifications of the model result in general equilibrium forces that dampen rather than amplify micro MPCs. The combination of smaller micro MPCs and dampening general equilibrium forces implies general equilibrium consumption multipliers that are below 0.2.
This is the first research seminar in the Marleau Lecture series
About the speaker:
Johannes Wieland is Associate Professor of Economics and holder of the Distinguished Endowed Chair in Macroeconomics and Public Finance at the University of California, San Diego.
His primary research interests include macroeconomics, international economics, economic history, and public finance. Specific topics of interest include the monetary transmission mechanism, the Great Depression, Abenomics, the interaction of structural transformation and the business cycle, the efficacy of fiscal policy, and the macroeconomic effects of remote work.
Prof Wieland earned a BA at the University of Cambridge, UK, an MPhil at the University of Oxford, UK, and a PhD at the University of California, Berkeley. He is a Research Associate at the National Bureau of Economic Research and Associate Editor at the Journal of Monetary Economics and the Review of Economic Dynamics. He has previously worked for the Federal Reserve Bank of Chicago and consulted for the Federal Reserve Bank of Minneapolis and the Federal Reserve Bank of San Francisco.