Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We introduce a new quantitative model of household expenditure shocks to rationalize the common anecdote of a low-income and low-liquidity household that uses additional income to save (repay debt) rather than consume. Our model also rationalizes key features of the joint dynamics of household-level consumption and income, including our finding that consumption is volatile yet disconnected from income, especially for households experiencing episodes of high consumption. The key feature of our model is stochastic consumption thresholds that yield large utility costs if violated. The stochastic thresholds increase the welfare cost of income fluctuations by an order of magnitude.