Authors: Gizem Kosar and Davide Melcangi
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Staff Reports
Subjective Uncertainty and the Marginal Propensity to Consume
Number 1148
April 2025 Revised April 2026
April 2025 Revised April 2026
JEL classification: D12, D84, E21
Earnings uncertainty is central to most heterogeneous-household models. Yet, there is little evidence on how subjective uncertainty, the uncertainty individuals actually perceive, is related to consumption behavior. Using unique data from the Survey of Consumer Expectations, we show that the marginal propensity to consume (MPC) is increasing and concave in individual–specific earnings growth uncertainty. In the workhorse consumption–savings model, augmented with risk heterogeneity, MPCs decline with earnings uncertainty, contrary to the empirical evidence. We pinpoint which mechanisms, central to the model, create this disconnect. Embedding empirically disciplined biased beliefs in the canonical model reconciles the theory with the empirical findings.
Author Disclosure Statement(s)
Gizem Koşar
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Davide Melcangi
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Davide Melcangi
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Suggested Citation:
Koşar, Gizem, and Davide Melcangi. 2025. “Subjective Uncertainty and the Marginal Propensity to Consume.” Federal Reserve Bank of New York Staff Reports, no. 1148, revised April 2026. https://doi.org/10.59576/sr.1148
Koşar, Gizem, and Davide Melcangi. 2025. “Subjective Uncertainty and the Marginal Propensity to Consume.” Federal Reserve Bank of New York Staff Reports, no. 1148, revised April 2026. https://doi.org/10.59576/sr.1148
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