Effects of unanticipated income shocks on consumption in Mexico, 2000-2016
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2024v39n101/LlamosasKeywords:
Impacts on consumption, Synthetic panel , IncomeAbstract
The effect of unexpected changes in income, both permanent and transitory, on the consumption of Mexican households during the period 2000 – 2016 is analyzed following the methodology developed by Blundell et al. (2008). Specifically, it is estimated which hypothesis is more consistent with the empirical evidence in Mexico: permanent income, complete markets, or partial insurance. The results suggest the presence of partial insurance on consumption in the face of permanent income shocks at the national level, although results are also consistent with the permanent income hypothesis. At the regional level, the coefficients that measure the effect of an income permanent shock on consumption are similar to those estimated at the national level for the north, north central and central regions, and of greater magnitude in the south, although with statistical significance only in the central north and south regions. Regarding temporary shocks, the coefficient of the effect of income shocks on consumption is not statistically significant at the national or regional level, which suggests a consumption smoothing by households in the face of temporary changes in their income.
JEL Classification: D12, D31, E21.
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