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Studies based on natural experiments find that consumption responds strongly and significantly to a transitory variation in income such as a tax rebate or a lottery win. Contrary to this, semi-structural methods that rely on theoretical restrictions to identify the consumption elasticity to a transitory shock in longitudinal survey data find that this elasticity is small and not statistically significant. I show that the two approaches reconcile when relaxing the assumption made by semi-structural methods that the log-consumption growth of a household is independent of the income shocks it has received in the past. With this generalized semi-structural method, the elasticity of nondurable consumption to a transitory shock is 0.54 and statistically significant. It implies that the marginal propensity to consume nondurables out of a transitory income shock over the following year is at least 0.24, which is consistent with findings from natural experiments.
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