Casper Nordal Jørgensen

Ph.d.-forsvar: Casper Nordal Jørgensen: "Understanding the Consumption and Savings Decisions of Households"

The dissertation analyse three different aspects of   how households choose to spend and save their money.

The first chapter discusses the so-called credit   card debt puzzle, the observation that households repeated hold expensive   credit card debt and low interest bearing assets. We show that this behaviour   can be perfectly rational when households face the risk of losing access to   future credit card borrowing. The key is that current borrowing acts as an   insurance against future income loss. We show that households place a   considerable premium on this option.

The second chapter addresses an alternative approach   to estimating marginal propensities to consume (MPC). We show that estimating   consumption functions using regression splines and then calculating MPCs   yields surprisingly accurate estimates. The proposed method is beneficial   because of its simplicity and because it does not require e.g. natural   experiments to infer households propensities to consume. Using the method we   find the Danish aggregate MPC to be about 47%.

The third and final chapter addresses and quantifies   a new channel --quality channel-- for consumption smoothing. When facing   higher unemployment rates middle and high income households reduce shopping expenditures   by buying both fewer and cheaper products. Low income households, however do   not reduce their expenditures. Our evidence suggests that the low income   households are shopping constrained, because they are already buying the   lowest priced products. This suggests that we might severely underestimate   the welfare costs of business cycles using traditional economic models.