In this seminar Matthew Shapiro will provide an overview of his recent paper, How individuals smooth spending: Evidence from the 2013 government shutdown using account data.

Using comprehensive account records, this paper presented by Matthew Shapiro examines how individuals adjusted spending and saving in response to a temporary drop in income due to the 2013 US government shutdown. The shutdown cut paychecks by 40 per cent for affected employees, which was recovered within two weeks. Because it affected only the timing of payments, the shutdown provides a distinct experiment allowing estimates of the response to a liquidity shock holding income constant. Spending dropped sharply implying a naïve estimate of the marginal propensity to spend of 0.58. This estimate overstates how consumption responded. While many individuals had low liquidity, they used multiple strategies to smooth consumption including delay of recurring payments such as mortgages and credit card balances.

Matthew D Shapiro is the Lawrence R. Klein Collegiate Professor of Economics and Research Professor (Survey Research Center) at the University of Michigan. He is editor of the American Economic Journal: Economic Policy. He is also a Research Associate of the National Bureau of Economic Research. Shapiro received BA and MA degrees from Yale in 1979 and a PhD from MIT in 1984.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.