“Propensity to consume over windfall liquidity shock : evidence from quasi experimetal public policy in Chile”

Abstract

Leveraging detailed private banking data from Chile, this study examines the marginal propensity to consume over a liquidity shock (MP C∆L) and marginal propensity to repay debt over a liquidity shock (MP RD∆L) across diverse groups following an unexpected policy that allowed pension fund access during the COVID-19 crisis. Our findings highlight a pronounced MP C∆L among groups with lower levels of withdrawals, consumption, and cash reserves post-legislation, challenging the Permanent Income Hypothesis, Liquidity restriction models and suggesting a preference for a buffer-stock model. For MP RD∆L, we observed an increased propensity to repay debt, notably in scenarios of high pre-existing debt, particulary in consumer debt, and among individuals with previously delinquency debt. This research provides key insights into the use of retirement savings for public policy during stressed economic scenarios.