Essays on Consumer Heterogeneity and Monetary Policy

<p dir="ltr">Government policies affect individuals in diverse ways. Analyzing variation in consumer responses across demographic groups provides insight into the drivers of aggregate economic behavior. This dissertation investigates consumer heterogeneity and its interaction with fiscal and monetary policy, with a particular focus on differences by race and gender. I estimate how these group differences are reflected in consumption, saving, and labor market outcomes.</p><p dir="ltr">In the first chapter, I study racial differences in consumption and saving behavior using data from a new survey I collected and a quantitative life-cycle model. In my survey, marginal propensities to consume (MPCs) are higher among black than white respondents, even after adjusting for characteristics such as age, education, and income. In the Consumer Expenditure Survey, black households consume a higher share of visible goods out of overall consumption than white households to signal status. To match these facts, I introduce status compensation motives into a standard life-cycle model. The status mechanism can account for 36% of the racial difference in MPCs. I also use my model to analyze policies that address the racial wealth gap.</p><p dir="ltr">In the second chapter, I find evidence that contractionary monetary policy shocks increase consumption inequality by gender and race, along with increasing unemployment and income inequality. Following a 25 basis point contractionary shock, spending on durable goods falls by 7.5% for households headed by black women, while only 5% for households headed by white men. Contractionary shocks also lead households to substitute expenditures on essentials for non-essentials and durable goods. Household characteristics such as education, debt, income, or composition do not explain all gender and racial differences in consumption.</p><p dir="ltr">In the third chapter, I use data from my survey to analyze consumer reactions to Federal Reserve communications. I find that MPCs and planned spending are positively correlated with inflation expectations. Inflation expectations are higher for black than white respondents, even when accounting for other characteristics. Receiving information on Fed communications leads to meaningful revisions in expectations. Respondents that follow the news and have low trust in the Fed react less to communications, while those with high MPCs react more to communications.</p>