Casper Nordal Jørgensen defends his PhD thesis at the Department of Economics

Candidate
Casper Nordal Jørgensen

Title
“Understanding the Consumption and Savings Decisions of Households“. Prior to the defence, copies of the dissertation are available at the Information Desk at the Department of Economics, room 26.0.20.

Assessment committee

• Professor Mette Ejrnæs, Department of Economics, University of Copenhagen
• Professor Martin Browning, Department of Economics, University of Oxford, UK
• Professor Bent Jesper Christensen, Department of Economics and Business Economics, Aarhus School of Business and Social Sciencess, Aarhus University

Time and venue
Monday 29 May 2017 at 14.00. University of Copenhagen, Centre for Health and Society, Øster Farimagsgade 5, 1353 Copenhagen K, building 26, Det Store Seminarrum (the big seminarroom, room 26.2.21), 2nd floor. Kindly note that the defence will start precisely at the announced time.

Abstract
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.