Structural cointegrated models of US consumption and wealth

► Two structural models of US consumption, labor income and wealth are specified. ► Both are estimated using the method of Pagan and Pesaran (2008). ► One model is equivalent to the model of Lettau and Ludvigson (2011). ► In the alternative model, the reallocation shock has a pronounced effect on consumption. ► This finding is consistent with a sizable proportion of liquidity constrained consumers.