The marginal interest rate is the price at which a household can access additional liquidity. Consumption theory posits that variation in marginal interest rates across consumers predicts differences in the propensity to spend a stimulus payment. This hypothesis is tested in the context of a Danish 2009 stimulus policy that transformed illiquid pension wealth into liquid wealth. Marginal interest rates are constructed from administrative records with account level information and merged with survey data measuring the spending response to the stimulus policy. The data reveal substantial variation in marginal interest rates across consumers, and these interest rates predict spending responses.
Kreiner, Claus Thustrup, David Dreyer Lassen, and Søren Leth-Petersen.
"Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy."
American Economic Journal: Economic Policy,
Household Saving; Personal Finance
Intertemporal Household Choice; Life Cycle Models and Saving
Macroeconomics: Consumption; Saving; Wealth
Interest Rates: Determination, Term Structure, and Effects