Did Marginal Propensities to Consume Change with the Housing Boom and Bust?

We extend a widely-used semi-structural model to identify and estimate dynamic consumption elasticities
with respect to transitory income shocks. Applying our model to household survey data, we find a
structural break in marginal propensities to consume following the end of the housing market boom, with
the average across households increasing significantly. Our results suggest important heterogeneity by
different household balance sheet characteristics and that the increase in the average was driven by
higher short-run consumption elasticities for homeowners with low liquid wealth. The change in
consumption behavior appears to be related to tighter borrowing constraints more than a shift in wealth
distributions.