Essays on Consumption Dynamics

This dissertation, titled "Essays on Consumption Dynamics," comprises three chapters delving into consumer behavior within the context of household financial management. It sheds light on how consumers navigate their budgets concerning daily expenses, particularly around bill payments, and examines the potential influence of household financial holdings on the redistribution effects of monetary policy. The first chapter delves into how consumers strategically handle their budgets in proximity to bill payments. Analyzing daily transaction-level data containing detailed expenditure information, it reveals a trend of consumers deferring non-bill expenditures until after bill payments. Spending spikes by 41% - 51% above average on the day of and the days following a bill payment. This behavior lessens when consumers possess ample liquidity before the bill payment but intensifies for those with lower pay frequencies, indicating budgeting challenges within the pay cycle. Notably, consumers utilizing automatic bill payments exhibit different spending behaviors, possibly due to holding more liquidity. These findings underscore consumers' adeptness at managing spending to meet prioritized payment commitments and advocate for aligning bills with income payments for consumer benefit. The second chapter, a collaborative effort with Dr. Scott Schuh, builds upon Schuh's (2018) findings regarding daily transaction-level consumer payments in the 2012 Diary of Consumer Payment Choice (DCPC), extending the analysis through 2020 with enhanced measurement. Incorporating household and respondent income data into the DCPC provides insights into a significant portion of U.S. personal disposable income. Estimations based on a benchmark PIH model using daily DCPC data yield results consistent with existing literature while offering novel perspectives on consumption and expected income dynamics. Comparison with "big" transaction data highlights four advantages of the DCPC, including its representativeness, accessibility, measurement improvements, and real-time implementation flexibility. The third chapter investigates theoretical pathways described in literature through which inflation might influence consumption inequality. Leveraging the Survey of Consumer Finances, it examines inequality during a recent inflationary period in the US to ascertain dominant theoretical channels. Analysis reveals a notable negative correlation between debt holdings and consumption inequality in 2022, with no economically significant relationship observed between liquid asset holdings and inflation. This suggests that the reduction in real debt burdens outweighs the increased burden of an inflation tax, potentially leading to decreased consumption inequality. However, despite these findings, aggregate consumption inequality remains unchanged from 2019 to 2022, indicating a tenuous relationship between inflation and overall consumption inequality.